Document ID: SEC-2016-1144-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX, LLC
Posted Date: 2016-07-06T04:00Z

[Federal Register Volume 81, Number 129 (Wednesday, July 6, 2016)]
[Notices]
[Pages 44079-44083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-15915]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78192; File No. SR-Phlx-2016-72]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to 
Detection of Loss of Connection

June 29, 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 June 15, 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 Phlx Rule 1019, entitled 
``Acceptance of Bid or Offer'' to adopt functionality which is designed 
to assist Phlx members and member organizations (hereinafter 
``member(s)'') in the event that they lose communication with their 
assigned Financial Information eXchange (``FIX'') \3\ or Specialized 
Quote Feed (``SQF'') \4\ Ports due to a loss of connectivity.
---------------------------------------------------------------------------

    \3\ FIX permits the entry of orders.
    \4\ SQF permits the transmission of quotes to the Exchange by a 
Market Maker using its Client Application. SQF Auction Responses 
would not be cancelled pursuant to this Rule 1019 because other 
rules govern auction specific responses. Market Sweeps would not be 
cancelled pursuant to this Rule 1019 because these type of orders 
are Immediate or Cancel (``IOC'').
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.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
    Phlx proposes to amend Rule 1019 entitled ``Acceptance of Bid or 
Offer'' to adopt a new section ``c'' entitled ``Detection of Loss of 
Connection,'' a new automated process which Phlx proposes to adopt for 
its SQF \5\ and FIX Ports in the event that they lose communication 
with a Client Application due to a loss of connectivity. This feature 
is designed to protect Market Makers \6\ and other market participants 
from inadvertent exposure to excessive risk.
---------------------------------------------------------------------------

    \5\ Today, SQF has capability to cancel quotes for technical 
disconnects, although there is no automated process triggered by 
pre-set conditions. The rule change would adopt a formalized process 
to automatically cancel quotes when there is a loss of communication 
with the member's Client Application.
    \6\ Phlx Market Makers include Specialists and Registered 
Options Traders or ``ROTs.'' A Specialist is an Exchange member who 
is registered as an options specialist. See Phlx Rule 1020(a). An 
ROT is defined in Exchange Rule 1014(b) as a regular member or a 
foreign currency options participant of the Exchange located on the 
trading floor who has received permission from the Exchange to trade 
in options for his own account. See Exchange Rule 1014 (b)(i) and 
(ii). A ROT includes a Streaming Quote Trader or ``SQT,'' a Remote 
Streaming Quote Trader or ``RSQT'' and a Non-SQT, which by 
definition is neither a SQT nor a RSQT. For purposes of this filing, 
Specialists and ROTs shall be defined broadly as ``Market Makers.''
---------------------------------------------------------------------------

    By way of background, Phlx members currently enter quotes and 
orders utilizing either an SQF or FIX Port. SQF is utilized by Phlx 
Market Makers and FIX is utilized by all market participants. These 
ports are trading system components through which a member communicates 
its quotes and/or orders to the Phlx match engine through the member's 
Client Application. Under the proposed rule change, an SQF Port would 
be defined as the Exchange's system component through which members 
communicate their quotes from the member's Client Application at 
proposed Rule 1019(c)(i)(B). A FIX Port would be defined as the 
Exchange's system component through which members communicate their 
orders from the member's Client Application at proposed Rule 
1019(c)(i)(C). Market Makers may submit quotes to the Exchange from one 
or more SQF Ports. Similarly, market participants may submit orders to 
the Exchange from one or more FIX Ports. The proposed cancellation 
feature will be mandatory for each Market Maker utilizing SQF for the 
removal of quotes and optional for any market participant utilizing FIX 
for the removal of orders.
    When the SQF Port detects the loss of communication with a member's 
Client Application because the Exchange's server does not receive a 
Heartbeat message \7\ for a certain period of time (a period of ``nn'' 
seconds), the Exchange will automatically logoff the member's affected 
Client Application and automatically cancel all of the member's open 
quotes. Quotes will be cancelled across all Client Applications that 
are associated with the same Specialist or Registered Options Trader 
(collectively ``Market Maker'') ID and underlying issues.
---------------------------------------------------------------------------

    \7\ It is important to note that the Exchange separately sends a 
connectivity message to the member as evidence of connectivity.
---------------------------------------------------------------------------

    The Exchange proposes to define ``Client Application'' as the 
system component of the member through which the Exchange member or 
member organization communicates its quotes and orders to the Exchange 
at proposed Rule 1019(c)(i)(D). The Exchange proposes to define a 
``Heartbeat'' message as a communication which acts as a virtual pulse 
between the SQF or FIX Port and the Client Application at proposed Rule 
1019(c)(i)(A). The Heartbeat message sent by the member and 
subsequently received by the Exchange allows the SQF or FIX Port to 
continually monitor its connection with the member.

[[Page 44080]]

SQF Ports
    The Exchange's system has a default time period, which will trigger 
a disconnect from the Exchange and remove quotes, set to fifteen (15) 
seconds for SQF Ports. A member may change the default period of ``nn'' 
seconds of no technical connectivity to trigger a disconnect from the 
Exchange and remove quotes to a number between one hundred (100) 
milliseconds and 99,999 milliseconds for SQF Ports prior to each 
session of connectivity to the Exchange. This feature is enabled for 
each Market Maker and may not be disabled.
    There are two ways to change the number of ``nn'' seconds: (1) 
Systemically or (2) by contacting the Exchange's operations staff. If 
the member systemically changes the default number of ``nn'' seconds, 
that new setting shall be in effect throughout the current session of 
connectivity \8\ and will then default back to fifteen seconds.\9\ The 
member may change the default setting systemically prior to each 
session of connectivity. The member may also communicate the time to 
the Exchange by calling the Exchange's operations staff. If the time 
period is communicated to the Exchange by calling Exchange operations, 
the number of ``nn'' seconds selected by the member shall persist for 
each subsequent session of connectivity until the member either 
contacts Exchange operations and changes the setting or the member 
systemically selects another time period prior to the next session of 
connectivity.
---------------------------------------------------------------------------

    \8\ Each time the member connects to the Exchange's system is a 
new period of connectivity. For example, if the member were to 
connect and then disconnect within a trading day several times, each 
time the member disconnected the next session would be a new session 
of connectivity.
    \9\ The Exchange's system would capture the new setting 
information that was changed by the member and utilize the amended 
setting for that particular session. The setting would not persist 
beyond the current session of connectivity and the setting would 
default back to 15 seconds for the next session if the member did 
not change the setting again.
---------------------------------------------------------------------------

FIX Ports
    The Exchange's system has a default time period, which will trigger 
a disconnect from the Exchange and remove orders, set to thirty (30) 
seconds for FIX Ports. The Phlx member may disable the removal of 
orders feature but not the disconnect feature. If the Phlx member 
elects to have its orders removed, in addition to the disconnect, the 
Phlx member may determine a time period of no technical connectivity to 
trigger the disconnect and removal of orders between one hundred (100) 
milliseconds and 99,999 milliseconds [sic].
    There are two ways to change the number of ``nn'' seconds: (1) 
Systemically or (2) by contacting the Exchange's operations staff. If 
the member systemically changes the default number of ``nn'' seconds, 
that new setting shall be in effect throughout that session of 
connectivity and will then default back to thirty seconds at the end of 
that session. The member may change the default setting systemically 
prior to each session of connectivity. The member may also communicate 
the time to the Exchange by calling the Exchange's operations staff. If 
the time period is communicated to the Exchange by calling Exchange 
operations, the number of ``nn'' seconds selected by the member shall 
persist for each subsequent session of connectivity until the member 
either contacts Exchange operations and changes the setting or the 
member systemically selects another time period prior to the next 
session of connectivity.
    Similar to SQF Ports, when a FIX Port detects the loss of 
communication with a member's Client Application for a certain time 
period (a period of ``nn'' seconds), the Exchange will automatically 
logoff the member's affected Client Application and if elected, 
automatically cancel all open orders. The member may have an order 
which has routed away prior to the cancellation, in the event that the 
order returns to the Order Book, because it was either not filled or 
partially filled, that order will be subsequently cancelled.
    The disconnect feature is mandatory for FIX users however the user 
has the ability to elect to also enable a removal feature, which will 
cancel all open orders submitted through that FIX Port. If the removal 
of orders feature is not enabled, the system will simply disconnect the 
FIX user and not cancel any orders. The FIX user would have to commence 
a new session to add, modify or cancel its orders once disconnected. 
The Exchange will issue an Options Trader Alert advising members on the 
manner in which they should communicate the number of ``nn'' seconds to 
the Exchange for SQF and FIX Ports.
    The trigger for the SQF and FIX Ports is event and Client 
Application specific. The automatic cancellation of the Market Maker's 
quotes for SQF Ports and open orders, if elected by the member for FIX 
Ports, entered into the respective SQF or FIX Ports via a particular 
Client Application will neither impact nor determine the treatment of 
the quotes of other Market Makers entered into SQF Ports or orders of 
the same or other members entered into the FIX Ports via a separate and 
distinct Client Application. In other words, with respect to quotes, 
each Market Maker only maintains one quote in a given option in the 
order book. A new quote would replace the existing quote. Orders on the 
other hand do not replace each other in the order book as multiple 
orders may exist in a given option at once. Therefore the difference in 
the impact as between Market Makers submitting quotes and members 
submitting orders is that quotes may continue to be submitted and/or 
refreshed by unaffected Market Makers because these market participants 
are cancelled based on ID when an SQF Port disconnects, whereas all of 
the open orders submitted by a given firm will be impacted when a FIX 
port disconnects, if the firm elected to have orders cancelled.
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, 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, by imposing this mandatory removal functionality on Market 
Makers to prevent disruption in the marketplace and also offering this 
removal feature to other market participants.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Market Makers will be required to utilize this removal 
functionality with respect to SQF Ports. This feature will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and protect investors and the public interest 
by requiring Market Makers quotes to be removed in the event of a loss 
of connectivity with the Exchange's system. Market Makers provide 
liquidity to the market place and have obligations unlike other market 
participants.\12\ This risk feature is important because it will enable 
Market Makers to avoid risks associated with inadvertent executions in 
the event of a loss of connectivity with the Exchange. The proposed 
rule change is designed to not permit unfair discrimination among 
market participants, as it would apply

[[Page 44081]]

uniformly to all Market Makers utilizing SQF.
---------------------------------------------------------------------------

    \12\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
---------------------------------------------------------------------------

    The disconnect feature of FIX is mandatory, however market 
participants will have the option to either enable or disable the 
cancellation feature, which would result in the cancellation of all 
orders submitted over a FIX port when such port disconnects. It is 
appropriate to offer this removal feature as optional to all market 
participants utilizing FIX, because unlike Market Makers who are 
required to provide quotes in all products in which they are 
registered, market participants utilizing FIX do not bear the same 
magnitude of risk of potential erroneous or unintended executions. In 
addition, market participants utilizing FIX may desire their orders to 
remain on the order book despite a technical disconnect, so as not to 
miss any opportunities for execution of such orders while the FIX 
session is disconnected.
    Utilizing a time period for SQF Ports of fifteen (15) seconds and 
permitting the Market Maker to modify the setting to between 100 
milliseconds and 99,999 milliseconds is consistent with the Act because 
the Exchange does not desire to trigger unwarranted logoffs of members 
and therefore allows members the ability to set their time in order to 
enable the Exchange the authority to disconnect the member with this 
feature. Each Market Maker has different levels of sensitivity with 
respect to this disconnect setting and each Market Maker has their own 
system safeguards as well. A default setting of fifteen (15) seconds is 
appropriate to capture the needs of all Market Makers and high enough 
not to trigger unwarranted removal of quotes.
    Further, Market Makers are able to customize their setting. The 
Exchange's proposal to permit a timeframe for SQF Ports between 100 
milliseconds and 99,999 milliseconds is consistent with the Act and the 
protection of investors because the purpose of this feature is to 
mitigate the risk of potential erroneous or unintended executions 
associated with a loss in communication with a Client Application. 
Members are able to better anticipate the appropriate time within which 
they may require prior to a logoff as compared to the Exchange. The 
member is being offered a timeframe by the Exchange within which to 
select the appropriate time. The Exchange does not desire to trigger 
unwarranted logoffs of members and therefore permits members to provide 
an alternative time to the Exchange, within the Exchange's prescribed 
timeframe, which authorized the Exchange to disconnect the member. The 
``nn'' seconds serve as the member's instruction to the Exchange to act 
upon the loss of connection and remove quotes from the system. This 
range will accommodate members in selecting their appropriate times 
within the prescribed timeframes.
    Also, Market Makers have quoting obligations \13\ and are more 
sensitive to price movements as compared to other market participants. 
It is consistent with the Act to provide a wider timeframe within which 
to customize settings for FIX Ports as compared to SQF Ports. Market 
Makers need to remain vigilant of market conditions and react more 
quickly to market movements as compared to other members entering 
orders into the system. The proposal acknowledges this sensitivity 
borne by Market Makers and reflects the reaction time of Market Makers 
as compared to members entering orders. Of note, the proposed 
customized timeframe for FIX would be too long for Market Makers given 
their quoting requirements and sensitivity to price movements. Market 
Makers would be severely impacted by a loss of connectivity of more 
than several seconds. The Market Maker would have exposure during the 
time period in which they are unable to manage their quote and update 
that quote. The member is best positioned to determine their setting.
---------------------------------------------------------------------------

    \13\ Id.
---------------------------------------------------------------------------

    The Exchange's proposal is further consistent with the Act because 
it will mitigate the risk of potential erroneous or unintended 
executions associated with a loss in communication with a Client 
Application which protects investors and the public interest. Also, any 
interest that is executable against a Market Maker's quotes that is 
received \14\ by the Exchange prior to the trigger of the disconnect to 
the Client Application, which is processed by the system, automatically 
executes at the price up to the Market Maker's size. In other words, 
the system will process the request for cancellation in the order it 
was received by the system.
---------------------------------------------------------------------------

    \14\ The time of receipt for an order or quote is the time such 
message is processed by the Exchange book.
---------------------------------------------------------------------------

    The system operates consistently with the firm quote obligations of 
a broker-dealer pursuant to Rule 602 of Regulation NMS. Specifically, 
with respect to Market Makers, their obligation to provide continuous 
two-sided quotes on a daily basis is not diminished by the removal of 
such quotes triggered by the disconnect. Market Makers are required to 
provide continuous two-sided quotes on a daily basis.\15\ Market Makers 
will not be relieved of the obligation to provide continuous two-sided 
quotes on a daily basis, nor will it prohibit the Exchange from taking 
disciplinary action against a Market Maker for failing to meet the 
continuous quoting obligation each trading day as a result of 
disconnects.
---------------------------------------------------------------------------

    \15\ See note 12 above.
---------------------------------------------------------------------------

    Today, BOX Options Exchange LLC offers its market makers a similar 
feature to the one proposed by the Exchange for the automatic removal 
of quotes when connectivity issues arise.\16\ BOX automatically cancels 
a market maker's quotes for all appointed classes when BOX loses 
communication with a market maker's trading host for a specified time 
period. Phlx also proposes to similarly cancel Market Maker open quotes 
associated with the same Market Maker ID and underlyings. Phlx proposes 
to cancel all Market Maker's quotes in options which are assigned to 
that particular Market Maker. BOX appears to similarly cancel all open 
quotes in options which are assigned to a specific Market Maker. BOX's 
timeframe is no less than 1 second or no greater than 9 seconds. Phlx 
proposes a default timeframe for SQF Ports of fifteen (15) seconds with 
the ability to modify this setting with a value between 100 
milliseconds and 99,999 milliseconds. The proposal to permit Market 
Makers to amend the default setting at the beginning of each session of 
connectivity is consistent with the Act because it avoids unwarranted 
logoffs of members and provides members the opportunity to set a time, 
within the prescribed timeframe, to authorize the Exchange to 
disconnect the member.
---------------------------------------------------------------------------

    \16\ See BOX Rule 8140.
---------------------------------------------------------------------------

    Another distinction to note is that while BOX sets the time for the 
participant, Phlx permits members to modify the default setting for SQF 
Ports to a more appropriate time within a set of parameters. While BOX 
does not offer the cancellations of orders, Chicago Board Options 
Exchange, Incorporated's (``CBOE'') does offer its members a similar 
mechanism to cancel orders. CBOE's proposal is discussed further below.
    With respect to FIX Ports, the Exchange will offer this optional 
removal functionality to all market participants. Offering the removal 
feature on a voluntary basis to all other non-Market Maker market 
participants is consistent with the Act because it permits them an 
opportunity to utilize this risk feature, if desired, and avoid risks 
associated with inadvertent executions in the event of a loss of 
connectivity with the Exchange. The removal feature is designed to 
mitigate

[[Page 44082]]

the risk of missed and/or unintended executions associated with a loss 
in communication with a Client Application. The proposed rule change is 
designed to not permit unfair discrimination among market participants, 
as this removal feature will be offered uniformly to all Phlx members 
utilizing FIX.
    The Exchange will disconnect members from the Exchange and not 
cancel its orders if the removal feature is disabled. The disconnect 
feature is mandatory and will cause the member to be disconnected 
within the default timeframe or the timeframe otherwise specified by 
the member. This feature is consistent with the Act because it enables 
FIX users the ability to disconnect from the Exchange, assess the 
situation and make a determination concerning their risk exposure. The 
Exchange notes that in the event that orders need to be removed, the 
Phlx market participant may elect to utilize the Kill Switch \17\ 
feature. The Exchange believes that it is consistent with the Act to 
require other market participants to be disconnected because the 
participant is otherwise not connected to the Exchange's system and the 
member simply needs to reconnect to commence submitting and cancelling 
orders. The Exchange believes requiring a disconnect when a loss of 
communication is detected is a rational course of action for the 
Exchange to alert the member of the technical connectivity issue.
---------------------------------------------------------------------------

    \17\ See Phlx Rule 1019(b).
---------------------------------------------------------------------------

    The Exchange's proposal to set a default timeframe of thirty (30) 
seconds and permit a FIX user to modify the timeframe for FIX ports to 
between 1 second and 30 seconds for the removal of orders is consistent 
with the Act and the protection of investors because the purpose of 
this optional feature is to mitigate the risk of potential erroneous or 
unintended executions associated with a loss in communication with a 
Client Application. Members selecting the removal feature are able to 
better anticipate the appropriate time that they require prior to a 
logoff as compared to the Exchange, within the Exchange's prescribed 
timeframes. The Exchange does not desire to trigger unwarranted logoffs 
of members and therefore permits members to provide a time to the 
Exchange, within the Exchange's prescribed timeframe, to authorize the 
Exchange to disconnect the member and remove orders. The ``nn'' seconds 
serve as the member's instruction to the Exchange to act upon the loss 
of connection and remove orders from the system. The member is also 
best positioned to determine that they only desire the disconnect 
feature, which is mandatory, and do not desire to have their orders 
removed.
    The Exchange's proposal to offer other market participants the 
removal feature on a voluntary basis is similar to CBOE's Rule.\18\ 
CBOE offers market participants, on a voluntary basis, the ability to 
cancel orders entered through FIX when a technical disconnect occurs, 
similar to the Phlx proposal. CBOE's Rule offers members the 
opportunity to cancel orders within a timeframe determined by the 
Trading Permit Holder. The default value selected by the CBOE is no 
less than 5 seconds. The Exchange's default timeframe for the 
disconnect and removal of orders for FIX is 30 seconds with the ability 
to modify that timeframe to between 1 second and 30 seconds, on a 
session by session basis, in contrast to CBOE. Also, in contrast to 
CBOE, FIX users may choose to enable or disable the cancellation 
feature when a disconnect occurs. The proposed timeframe for the FIX 
feature is consistent with the Act because the Exchange seeks to 
provide its members with the ability to select the amount of time that 
they desire for a loss of communication prior to taking action to 
cancel open orders or simply disconnect. The member should have the 
ability to select the appropriate time, within a prescribed timeframe, 
for authorizing the Exchange to cancel its open orders or simply 
disconnect from the Exchange. Inadvertent cancellations may create a 
greater risk of harm to investors and the member is better positioned 
to determine the appropriate time, with the prescribed timeframe, to 
remove orders or disconnect. CBOE's rule also offers members the 
ability to cancel orders as proposed by Phlx, on a voluntary basis.
---------------------------------------------------------------------------

    \18\ See CBOE Rule 6.23C.
---------------------------------------------------------------------------

    The proposed rule change will help maintain a fair and orderly 
market which promotes efficiency and protects investors. This mandatory 
removal feature for Market Makers and optional removal for all other 
market participants will mitigate the risk of potential erroneous or 
unintended executions associated with a loss in communication with a 
Client Application.

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. Specifically, the Exchange does 
not believe the proposed rule change will cause an undue burden on 
intra-market competition because Market Makers, unlike other market 
participants, have greater risks in the market place. Quoting across 
many series in an option creates large principal positions that expose 
Market Makers, who are required to continuously quote in assigned 
options, to potentially significant market risk. Providing a broader 
timeframe for the disconnect and removal of orders for FIX as compared 
to the removal of quotes for SQF Ports does not create an undue burden 
on competition. Market Makers have quoting obligations \19\ and are 
more sensitive to price movements as compared to other market 
participants. The proposal is consistent with the Act because it 
provides a tighter timeframe for the disconnect and removal of quotes 
for SQF Ports as compared to the removal of orders for FIX Ports. 
Market Makers need to remain vigilant of market conditions and react 
more quickly to market movements as compared to other members entering 
multiple orders into the system. The proposal reflects this sensitivity 
borne by Market Makers and reflects the reaction time of Market Makers 
as compared to other members entering orders. Offering the removal 
feature to other market participants on an optional basis does not 
create an undue burden on intra-market competition because unlike 
Market Makers, other market participants do not bear the same risks of 
potential erroneous or unintended executions. FIX users have the 
opportunity to disable the cancellation feature and simply disconnect 
from the Exchange. FIX users may also set a timeframe that is 
appropriate for their business. It is appropriate to offer this 
optional cancellation functionality to other market participants for 
open orders, because those orders are subject to risks of missed and/or 
unintended executions due to a lack of connectivity which the 
participants needs to weigh. Finally, the Exchange does not believe 
that such change will impose any burden on inter-market competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. Other options exchanges offer similar functionality.\20\
---------------------------------------------------------------------------

    \19\ See note 12 above.
    \20\ See BOX's Rule 8140 and CBOE's Rule 6.23C.
---------------------------------------------------------------------------

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.

[[Page 44083]]

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, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\21\ and Rule 19b-4(f)(6) thereunder.\22\
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 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 intention 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days from the date of filing. However, Rule 
19b-4(f)(6)(iii) \23\ 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 Commission to waive the 
30-day operative delay so that it may immediately offer the proposed 
risk protection feature. The Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and 
the public interest. The Exchange proposes to adopt a functionality 
designed to assist Phlx members with managing certain risks in the 
event that a member loses communication with their FIX or SQF Ports due 
to a loss of connectivity. The Commission notes that two other options 
exchanges currently have similar risk protection functionalities for 
their members.\24\ Therefore, the Commission hereby waives the 30-day 
operative delay and designates the proposal effective upon filing.\25\ 
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.
---------------------------------------------------------------------------

    \23\ 17 CFR 240.19b-4(f)(6)(iii).
    \24\ See BOX Rule 8140 and CBOE Rule 6.23C.
    \25\ 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).
---------------------------------------------------------------------------

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-2016-72 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-2016-72. 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-2016-72 and should be 
submitted on or before July 27, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-15915 Filed 7-5-16; 8:45 am]
BILLING CODE 8011-01-P