Notice2021-19423
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Various Phlx Rules
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Published
September 9, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 172 (Thursday, September 9, 2021)</title>
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[Federal Register Volume 86, Number 172 (Thursday, September 9, 2021)]
[Notices]
[Pages 50584-50586]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-19423]
[[Page 50584]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92873; File No. SR-Phlx-2021-48]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Various
Phlx Rules
September 2, 2021.
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 August 23, 2021, 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 Options 2, Section 5,
Electronic Market Maker Obligations and Quoting Requirements, Options
2, Section 10, Directed Orders, Options 3, Section 13, Price
Improvement XL (``PIXL''), and Options 3, Section 26, Message Traffic
Mitigation.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rules">https://listingcenter.nasdaq.com/rulebook/phlx/rules</a>, 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 Rules at Options 2, Section 5,
Electronic Market Maker Obligations and Quoting Requirements, Options
2, Section 10, Directed Orders, Options 3, Section 13, Price
Improvement XL (``PIXL''), and Options 3, Section 26, Message Traffic
Mitigation. Each change is described below.
Options 2, Section 5
The Exchange proposes to amend Options 2, Section 5, which
describes quoting obligations for Market Makers \3\ and Lead Market
Makers,\4\ to conform the description of a LEAP for index options with
Options 4A, Section 12(b)(2). Today, SQTs and RSQTs are not required to
make two-sided markets in any Quarterly Option Series, any adjusted
option series, and any option series with an expiration of nine months
or greater, otherwise known as long-term options series or ``LEAPs.''
Current Options 2, Section 5(c)(2)(A) describes a LEAP as any option
series with an expiration of nine months or greater, while Options 4A,
Section 12(b)(2) describes a LEAP on an index option as a series of
options having not less than twelve and up to 60 months to
expiration.\5\ The Exchange proposes to amend Options 2, Section
5(c)(2)(A) to explicitly define a LEAP by product. Specifically, the
Exchange proposes to add the following phrase to end of the paragraph,
``for options on equities and exchange-traded funds (``ETFs'') or with
an expiration of twelve months or greater for index options'' to
distinguish LEAPs for options on equities and ETFs, which have an
opening month of 9 months, from LEAPS for index options, which have an
opening month of 12 months. This proposal is non-substantive as Options
4A, Section 12(b)(2) already defines a LEAP on an index option. The
Exchange is simply conforming Options 2, Section 5(c)(2)(A) to Options
4A, Section 12(b)(2).
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\3\ A ``Market Maker'' means a Streaming Quote Trader or a
Remote Streaming Quote Trader who enters quotations for his own
account electronically into the System. See Options 1, Section
1(b)(28). A ``Streaming Quote Trader'' or ``SQT'' means a Market
Maker 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 Options 1, Section 1(b)(54). A ``Remote Streaming
Quote Trader'' or ``RSQT'' means a Market Maker 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 Lead Market Maker upon Exchange approval.
An RSQT is also known as a Remote Market Maker (``RMM'') pursuant to
Options 2, Section 11. A Remote Streaming Quote Organization
(``RSQTO'') or Remote Market Maker Organization (``RMO'') are
Exchange member organizations that have qualified pursuant to
Options 2, Section 1. See Options 1, Section 1(b)(49).
\4\ A ``Lead Market Maker'' means a member who is registered as
an options Lead Market Maker pursuant to Options 2, Section 12(a). A
Lead Market Maker includes a Remote Lead Market Maker which is
defined as a Lead Market Maker in one or more classes that does not
have a physical presence on an Exchange's trading floor and is
approved by the Exchange pursuant to Options 2, Section 11. See
Options 1, Section 1(b)(27).
\5\ Phlx previously amended its Options 4A, Section 12, Terms of
Option Contracts, to change the number of expirations that the
Exchange may open for trading in series of options related to Long-
Term Options Series of index options. See Securities Exchange Act
Release No. 88460 (March 23, 2020), 85 FR 17146 (March 26, 2020)
(SR-Phlx-2020-10) (Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Options 4A, Section 12, Terms of
Option Contracts). This proposal amended Phlx's current expiration
for long-term index options from those series not having less than
nine and up to 60 months to expirations to a number of expirations
not having less than twelve and up to 60 months to expiration with
respect to Long-Term Options Series.
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Similar changes to distinguish terms for LEAPs on index options are
proposed for Options 2, Section 5(c)(2)(B) and (C) which are applicable
to Lead Market Makers,\6\ and Directed SQTs and Directed RSQTs.\7\
Also, a similar change is proposed to be added to Options 2, Section
5(c)(2)(D) which generally describes the manner in which the Exchange
calculates quoting obligations. This amendment will bring greater
clarity to the Exchange's rules.
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\6\ Lead Market Makers are required to make two-sided markets in
any Quarterly Option Series, any Adjusted Option Series, and any
LEAP. See Options 2, Section 5(c)(2)(B).
\7\ Directed SQTs and Directed RSQTs are not required to make
two-sided markets in any Quarterly Option Series, any Adjusted
Option Series, and any LEAP. See Options 2, Section 5(c)(2)(C).
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Options 2, Section 10
The Exchange proposes to correct an improper citation within
Options 2, Section 10(a)(iii) to Options 10, Section 11(a)(1)(C). The
citation should refer to the allocation rule at Options 3, Section
10(a)(1).
Options 3, Section 13
The Exchange proposes to amend Options 3, Section 13, Price
Improvement XL (``PIXL''). Specifically, the Exchange proposes to
update rule citations within Options 3, Section
[[Page 50585]]
13(c)--(e) to Options 9. The rule citations to ``Options 9, Section 1''
and ``Options 9, Section'' are being replaced with ``General 9, Section
1(c).'' The Exchange previously relocated Options 9, Section 1, Conduct
Inconsistent with Just and Equitable Principles of Trade, to General 9,
Section 1(c).\8\ Certain citations were missing the Section ``1'' as
well. The Exchange also proposes to make ``exceed'' plural within
Options 3, Section 13(d).
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\8\ See Securities Exchange Act Release No. 91058 (February 4,
2021), 86 FR 8966 (February 10, 2021) (SR-Phlx-2021-04) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To
Relocate Its PSX Equity and General Rules From Its Current Rulebook
Into Its New Rulebook Shell and Make Other Changes to the Phlx
Rules).
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Options 3 Section 26
The Exchange proposes to amend Options 3, Section 26, Message
Traffic Mitigation. Specifically, the Exchange proposes to amend
Options 3, Section 26(a)(3) which currently provides, ``The Exchange
shall disseminate an updated bid and offer price, together with the
size associated with such bid and offer, when:. . . the size associated
with the Exchange's bid (offer) increases by an amount greater than or
equal to a percentage (never to exceed 20%) of the size associated with
previously disseminated bid (offer). Such percentage, which shall never
exceed 20%, shall be determined on an issue-by-issue basis by the
Exchange and announced to membership via Exchange circular.'' The
Exchange proposes to make some non-substantive amendments to the
sentence, such as changing ``shall'' to ``will'' and moving the phrase
``by the Exchange''. The Exchange also proposes to amend the practice
of issuing a circular to announce the percentage specified in Options
3, Section 26(a)(3) to instead posting the percentage on the Exchange's
website. The Exchange believes that posting the information on the
Exchange's website will provide members and member organizations a
reference to the current percentage provided for within Options 3,
Section 26(a)(3) without the need to locate a notice that was
previously issued. Further, this practice will continue to provide
transparency to members and member organizations.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\10\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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Options 2, Section 5
The proposed amendment to Options 2, Section 5 is consistent with
the Act because it will distinguish LEAPs for options on equities and
ETFs, which have an opening month of 9 months, from LEAPS for index
options, which have an opening month of 12 months. This proposal is
non-substantive as Options 4A, Section 12(b)(2) already defines a LEAP
on an index option. The Exchange is simply conforming Options 2,
Section 5(c)(2)(A) to Options 4A, Section 12(b)(2). This amendment will
bring greater clarity to the Exchange's rules.
Options 2, Section 10
The Exchange's proposal to correct an improper citation within
Options 2, Section 10(a)(iii) is consistent with the Act and will bring
greater clarity to the Exchange's rules.
Options 3, Section 13
The Exchange's proposal to update rule citations within Options 3,
Section 13(c)--(e) from ``Options 9'' or ``Options 9, Section 1'' to
``General 9, Section 1(c)'' is consistent with the Act and will bring
greater clarity to the Exchange's Rulebook.
Options 3 Section 26
The Exchange's proposal to amend Options 3, Section 26(a)(3) to
make some non-substantive amendments, such as changing ``shall'' to
``will'' and moving the phrase ``by the Exchange'' and amending the
practice of issuing a circular to instead posting the percentage on the
Exchange's website are consistent with the Act. The Exchange believes
that posting the information on the Exchange's website will provide
members and member organizations a reference to the current percentage
within Options 3, Section 26(a)(3) without the need to locate a notice
that was previously issued. Further, this practice will continue to
provide transparency to members and member organizations.
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.
Options 2, Section 5
The proposed amendment to Options 2, Section 5 does not impose an
undue burden on competition because the proposal is a non-substantive
amendment to add specificity to the rule by distinguishing LEAPs for
options on equities and ETFs, which have an opening month of 9 months,
from LEAPS for index options, which have an opening month of 12 months.
This proposal will conform Options 2, Section 5(c)(2)(A) to Options 4A,
Section 12(b)(2).
Options 2, Section 10
The Exchange's proposal to correct an improper citation within
Options 2, Section 10(a)(iii) does not impose an undue burden on
competition, rather it will bring greater clarity to the Exchange's
rules.
Options 3, Section 13
The Exchange's proposal to update rule citations within Options 3,
Section 13(c)--(e) from ``Options 9'' or ``Options 9, Section 1'' to
``General 9, Section 1(c)'' does not impose an undue burden on
competition, rather the proposal will bring greater clarity to the
Exchange's Rulebook.
Options 3 Section 26
The Exchange's proposal to amend Options 3, Section 26(a)(3) to
make some non-substantive amendments, such as changing ``shall'' to
``will'' and moving the phrase ``by the Exchange'' and amending the
practice of issuing a circular to instead posting the percentage within
Options 3, Section 26(a)(3) on the Exchange's website does not impose
an undue burden on competition. The Exchange believes that posting the
information on the Exchange's website will continue to provide
transparency to members and member organizations.
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 \11\ and
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subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A)(iii).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \14\ 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
that the Commission waive the operative delay to permit the Exchange to
immediately amend Options 2, Section 5 to distinguish LEAPs for options
on equities and ETFs, which have an opening month of 9 months or
greater, from LEAPS for index options, which have an opening month of
12 months or greater, thereby conforming Options 2, Section 5(c)(2)(A)
to Options 4A, Section 12(b)(2). Further, the Exchange states that
amending Options 3, Section 26(a)(3) will continue to provide
transparency to members and member organizations with respect to the
manner in which the Exchange manages quote traffic. The Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest because (1) it will
allow the Exchange to immediately implement the proposed changes which
are designed to add clarity and consistency to the Exchange's rules
concerning LEAPs and (2) it will allow the Exchange to immediately
implement a change designed to better communicate to market
participants information concerning quote mitigation. Therefore, the
Commission hereby waives the 30-day operative delay and designates the
proposed rule change as operative upon filing.\15\
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\13\ 17 CFR 240.19b-4(f)(6).
\14\ 17 CFR 240.19b-4(f)(6)(iii).
\15\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#bfcdcad3da92dcd0d2d2dad1cbccffccdadc91d8d0c9"><span class="__cf_email__" data-cfemail="bac8cfd6df97d9d5d7d7dfd4cec9fac9dfd994ddd5cc">[email protected]</span></a>. Please include
File Number SR-Phlx-2021-48 on the subject line.
Paper Comments
<bullet> 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-2021-48. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-2021-48 and
should be submitted on or before September 30, 2021.
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\16\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19423 Filed 9-8-21; 8:45 am]
BILLING CODE 8011-01-P
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