Notice2023-14911
Self-Regulatory Organizations; Nasdaq Phlx LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Phlx Options 3 and 4A Rules
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 14, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 134 (Friday, July 14, 2023)</title>
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[Federal Register Volume 88, Number 134 (Friday, July 14, 2023)]
[Notices]
[Pages 45253-45259]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-14911]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97871; File No. SR-Phlx-2023-27]
Self-Regulatory Organizations; Nasdaq Phlx LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx
Options 3 and 4A Rules
July 10, 2023.
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 27, 2023, 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, II, and III 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 its Rules at Options 3, Options
Trading Rules, at: Section 4 Entry and Display of Quotes; Section 5,
Entry and Display of Orders; Section 7, Types of Orders and Order and
Quote Protocols; Section 8, Options Opening Process; Section 10,
Electronic Execution Priority and Processing in the System; Section 14,
Complex Orders; and Section 15, Risk Protections.
The Exchange also proposes to amend Phlx Options 4A, Sections 6,
Position Limits, and Section 12, Terms of Index Options Contracts.
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
[[Page 45254]]
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 Options 3, Options Trading Rules, at:
Section 4 Entry and Display of Quotes; Section 5, Entry and Display of
Orders; Section 7, Types of Orders and Order and Quote Protocols;
Section 8, Options Opening Process; Section 10, Electronic Execution
Priority and Processing in the System; Section 14, Complex Orders; and
Section 15, Risk Protections. The amendments proposed to the Options 3
Rules seek to codify the current System functionality and will not
result in System changes.
The Exchange also proposes to amend Phlx Options 4A, Sections 6,
Position Limits, and Section 12, Terms of Index Options Contracts. Each
change will be discussed below.
Option 3, Sections 4 and 5
The Exchange proposes to codify existing functionality that allows
Market Makers to submit their quotes to the Exchange in block
quantities as a single bulk message. In other words, a Market Maker may
submit a single message to the Exchange, which may contain bids and
offers in multiple series. The Exchange's current rules do not specify
bulk messaging for orders. The Exchange has historically provided
Market Makers with information regarding bulk messaging in its publicly
available technical specifications.\3\ To promote greater transparency,
the Exchange is seeking to codify this functionality in its Rulebook.
Specifically, the Exchange proposes to amend Phlx Options 3, Section
4(b)(3) to memorialize that quotes may be submitted as a bulk message.
The Exchange also proposes to add a definition of ``bulk message'' in
new subparagraph (i) of Options 3, Section 4(b)(3), which will provide
that a bulk message means a single electronic message submitted by a
Market Maker to the Exchange which may contain a specified number of
quotations as designated by the Exchange.\4\ The bulk message,
submitted via SQF,\5\ may enter, modify, or cancel quotes. Bulk
messages are handled by the System in the same manner as it handles a
single quote message. MRX recently added bulk messages to MRX Options
3, Section 4(b)(3).\6\ The proposed amendment to the Rulebook to add
Phlx Options 3, Section 4(b)(3) will not result in a System change.
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\3\ See <a href="https://www.nasdaq.com/docs/2023/01/12/0054-Q23_SQF_8.2b%20akg_NAM.pdf">https://www.nasdaq.com/docs/2023/01/12/0054-Q23_SQF_8.2b%20akg_NAM.pdf</a>. (specifying for bulk quoting of up to
200 quotes per quote block message). The specifications note in
other places the manner in which a member or member organization can
send such quote block messages.
\4\ Id. As noted above, quote bulk messages can presently
contain up to 200 quotes per message. This is the maximum amount
that is permitted in a bulk message. The Exchange would announce any
change to these specifications in an Options Technical Update
distributed to all members and member organizations.
\5\ ``Specialized Quote Feed'' or ``SQF'' is an interface that
allows Lead Market Makers, Streaming Quote Traders (``SQTs'') and
Remote Streaming Quote Traders (``RSQTs'') to connect, send, and
receive messages related to quotes, Immediate-or-Cancel Orders, and
auction responses into and from the Exchange. Features include the
following: (1) options symbol directory messages (e.g., underlying
and complex instruments); (2) system event messages (e.g., start of
trading hours messages and start of opening); (3) trading action
messages (e.g., halts and resumes); (4) execution messages; (5)
quote messages; (6) Immediate-or-Cancel Order messages; (7) risk
protection triggers and purge notifications; (8) opening imbalance
messages; (9) auction notifications; and (10) auction responses. The
SQF Purge Interface only receives and notifies of purge requests
from the Lead Market Maker, SQT or RSQT. Lead Market Makers, SQTs
and RSQTs may only enter interest into SQF in their assigned options
series. See Options 3, Section 7(a)(i)(B).
\6\ See Securities Exchange Act, Release No. 95982 (October 4,
2022), 87 FR 61391 (October 11, 2022) (SR-MRX-2022-18) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Its Rules in Connection With a Technology Migration to Enhanced
Nasdaq Functionality) (``SR-MRX-2022-18'').
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The Exchange also proposes to amend Phlx Options 3, Section 4(b)(6)
to provide the following,
A quote will not be executed at a price that trades through another
market or displayed at a price that would lock or cross another market.
If, at the time of entry, a quote would cause a locked or crossed
market violation or would cause a trade-through, violation, it will be
re-priced to the current national best offer (for bids) or the current
national best bid (for offers) as non-displayed, and displayed at one
minimum price variance above (for offers) or below (for bids) the
national best price.
Where a quote is re-priced to avoid a locked or crossed market, the
best bid or offer will be non-displayed and the re-priced order will be
displayed at a price that is one minimum trading increment inferior to
the ABBO. A similar change is proposed for Options 3, Section 5(d). MRX
recently amended Options 3, Section 4(b)(6) and Options 3, Section 5(d)
to include this language.\7\ At this time, the Exchange proposes to
amend Phlx's rule text to reflect that the actual price remains non-
displayed in this scenario. The proposed amendment to the Rulebook to
add Phlx Options 3, Section 4(b)(6) will not result in a System change.
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\7\ See Securities Exchange Act, Release No. 95807 (September
16, 2022), 87 FR 57933 (September 22, 2022) (SR-MRX-2022-16) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Certain Rules in Connection With a Technology Migration to
Enhanced Nasdaq Functionality) (``SR-MRX-2022-16'').
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Similarly, the Exchange proposes to add a new Phlx Options 3,
Section 4(b)(7) to clarify that, today, Phlx's System will
automatically execute eligible quotes using the Exchange's displayed
best bid and offer (``BBO'') or the Exchange's non-displayed order book
(``internal BBO'') \8\ if the best bid and/or offer on the Exchange has
been repriced pursuant to Options 3, Section 5(d) and Options 3,
Section 4(b)(6). This rule text seeks to codify the current System
function and make clear that the internal BBO is comprised of both
orders and quotes.\9\ MRX recently amended Options 3, Section 4(b)(7)
to include the same language.\10\ At this time, the Exchange proposes
to align Phlx's rule text in Options 3, Section 4(b)(7) to MRX's rule
text in Options 3, Section 4(b)(7). The proposed amendment to the
Rulebook to add Phlx Options 3, Section 4(b)(7) will not result in a
System change.
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\8\ The internal BBO refers to the Exchange's non-displayed
book.
\9\ The Exchange also proposes to re-number current Options 3,
Section 4(b)(7) as (8).
\10\ See SR-MRX-2022-16.
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Finally, the Exchange proposes to amend Phlx Options 3, Section
5(c) to include a citation to Options 3, Section 4(b)(6) as the
internal BBO is comprised of both orders and quotes, similar to
MRX.\11\
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\11\ Id.
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The amendments proposed to Options 3, Sections 4 and 5 do not
change the current System functionality.
Options 3, Section 7
The Exchange proposes to amend the description of Specialized Quote
Feed or ``SQF'' within Phlx Options 3, Section 7(a)(i)(B) to add rule
text which states, ``Immediate-or-Cancel Orders entered into SQF are
not subject to the Order Price Protection, Market Order Spread
Protection, or Size Limitation Protection in Options 3, Section
15(a)(1), (a)(2), and (b)(2) respectively.'' This rule text is
currently noted within Options 3, Section 7(c)(2)(B). The Exchange is
adding the same language into the description of SQF to provide
[[Page 45255]]
a more complete description. The addition of this information would
align the level of information of Phlx's rule text to Phlx's rule text
at Options 3, Section 7(a)(i)(B). The proposed amendment to Phlx
Options 3, Section 77(a)(i)(B) will not result in System changes.
The Exchange proposes to relocate, without amendment, the Legging
Order type from Phlx Options 3, Section 14(f)(iii)(C) to Options 3,
Section 7(b)(10) to place the order type with other simple order book
order types.
Options 3, Section 8
The Exchange proposes to amend Phlx Options 3, Section 8(j)(3),
which currently describes the determination of Opening Quote Range
(``OQR'') boundaries in certain scenarios.\12\ Specifically, the
Exchange proposes to replace ``are marketable against the ABBO'' with
``cross the ABBO'' to precisely describe the specified scenario within
this rule. The Exchange notes that this is not a System change, rather
this amendment clarifies the applicability of the rule text. This
change is identical to a change recently made on MRX at Options 3,
Section 8(i)(3).\13\ The proposed amendment to Phlx Options 3, Section
8(j)(3) will not result in a System change.
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\12\ OQR is an additional type of boundary used in the Opening
Process, and is intended to limit the opening price to a reasonable,
middle ground price, thus reducing the potential for erroneous
trades during the Opening Process.
\13\ See SR-MRX-2022-18.
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Next, the Exchange proposes to amend Phlx Options 3, Section
8(k)(D) to align Phlx's rule text with that of MRX Options 3, Section
8(j)(6)(i) by stating ``Pursuant to Options 3, Section 8(k)(C)(6), the
System will re-price Do Not Route orders (that would otherwise have to
be routed to the exchange(s) disseminating the ABBO for an opening to
occur) to the current away best offer (for bids) or the current away
best bid (for offers) as non-displayed, and display at a price that is
one minimum trading increment inferior to the ABBO, and disseminate the
re-priced DNR Order as part of the new PBBO.'' The proposed language
more explicitly describes the manner in which the Exchange will re-
price orders and would mirror rule text in Phlx Options 3, Section
4(b)(6). The proposed amendment to Phlx Options 3, Section 8(k)(D) will
not result in a System change.
Options 3, Section 10
The Exchange proposes to amend Options 3, Section 10(a)(1)(C) to
add a sentence which states that ``This participation entitlement will
be considered after the Opening Process.'' The Directed Market Maker
entitlement requires a Market Maker to quote at or better than the
internal BBO or NBBO. The NBBO would not be available pre-opening. The
Exchange proposes to add this language to provide clarity. The proposed
amendment to Phlx Options 3, Section 10(a)(1)(C) will not result in a
System change.
Options 3, Section 15
MRX recently amended its Order Price Protection (``OPP'') \14\
rule.\15\ MRX's OPP rule utilized different rule text to explain the
OPP functionality than is currently on Phlx. At this time, the Exchange
proposes to amend Phlx Options 3, Section 15(a)(1) to align Phlx's rule
text to MRX's rule text within Options 3, Section 15(a)(1)(A).
Specifically, the Exchange proposes to remove the references to ``Day
Limit, Good til Cancelled, Immediate-or-Cancel and All-or-None Orders''
and, instead, simply refer to ``Limit'' Orders as that order type
accurately captures the scope of the orders subject to OPP. Further,
the Exchange proposes to remove ``Market Orders'' from the next
sentence since OPP only applies to Limit Orders. The Exchange also
proposes to capitalize ``Opening'' and add Process in Options 2,
Section 15(a)(1)(A) to refer to the Opening Process within Options 3,
Section 8. The proposed amendment to Options 3, Section 15(a)(1) will
not result in a System change.
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\14\ OPP prevents the execution of Limit Orders at prices
outside pre-set parameters.
\15\ See SR-MRX-2022-18.
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Additionally, the Exchange proposes to amend its Acceptable Trade
Range (``ATR'') Rule within Phlx Options 3, Section 15(b)(1).\16\ MRX
recently amended its ATR rule.\17\ MRX's ATR rule utilized different
rule text to explain the ATR functionality. At this time, the Exchange
proposes to amend Options 3, Section 15(b)(1)(A) to add the internal
BBO concept described above with respect to Options 3, Sections 4 and
5. Where a quote is re-priced to avoid a locked or crossed market, the
best bid or offer will be non-displayed and the re-priced order will be
displayed at a price that is one minimum trading increment inferior to
the ABBO. The best price on the order book could therefore be non-
displayed. The addition of this language makes clear the manner in
which the System calculates the Reference Price.
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\16\ ATR is designed to guard against the System from
experiencing dramatic price swings by preventing the immediate
execution of quotes and orders beyond the thresholds set by the
protection.
\17\ See SR-MRX-2022-16.
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The Exchange proposes to amend Options 3, Section 15(b)(1)(B) to
add the words ``after the Posting Period'' to explain when a new ATR
would be calculated to provide more context to the rule. The Exchange
also proposes to amend Options 3, Section 15(b)(1)(B) and (C) to add
the word ``quote'' where it was omitted.
Additionally, similar to MRX Options 3, Section 15(a)(2)(A)(v) the
Exchange proposes to add the following rule text within Phlx Options 3,
Section 15(b)(1)(D),
There will be three categories of options for Acceptable Trade
Range: (1) Penny Interval Program Options trading in one cent
increments for options trading at less than $3.00 and increments of
five cents for options trading at $3.00 or more, (2) Penny Interval
Program Options trading in one-cent increments for all prices, and (3)
Non-Penny Interval Program Options.
This is how Phlx operates today. This rule text makes clear the
application of Phlx Options 3, Section 3 to the ATR rule by explicitly
stating the Exchange's ability to set different ATR values by options
category. These ATR values are set forth in Phlx's System Settings
document which is posted online.\18\ The Exchange believes this rule
text will add greater clarity to the ATR rule. The proposed amendment
to Options 3, Section 15(b)(1) will not result in a System change.
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\18\ <a href="https://www.nasdaq.com/docs/PHLXSystemSettings">https://www.nasdaq.com/docs/PHLXSystemSettings</a>.
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Options 4A, Sections 6 and 12
The Exchange no longer lists options on the Russell indexes.
Specifically, the Exchange has not listed options on the Full Value
Russell 2000[supreg]Options, Reduced Value Russell 2000[supreg]Options,
Russell 3000[supreg]Index, Russell 3000[supreg]Value Index, Russell
3000[supreg]Growth Index, Russell 2500<SUP>TM</SUP> Index, Russell
2500<SUP>TM</SUP> Value Index, Russell 2500<SUP>TM</SUP> Growth Index,
Russell 2000[supreg]Value Index, Russell 2000[supreg]Growth Index,
Russell 1000[supreg]Index, Russell 1000[supreg]Value Index, Russell
1000[supreg]Growth Index, Russell Top 200[supreg]Index, Russell Top
200[supreg]Value Index, Russell Top 200[supreg]Growth Index, Russell
MidCap[supreg]Index, Russell MidCap[supreg]Value Index, Russell
MidCap[supreg]Growth Index, Russell Small Cap
Completeness[supreg]Index, Russell Small Cap Completeness[supreg]Value
Index and the Russell Small Cap Completeness[supreg]Growth Index
(collectively ``Russell U.S. Indexes'') in several years. At this time,
the Exchange
[[Page 45256]]
proposes to remove the Russell Indexes from Options 4A, Sections
6(a)(i), (iii) and 6(c), as well as references within Options 4A,
Section 12(a)(2) and Supplementary Material .01 and .03 of Options 4A,
Section 12 because options on the Russell Indexes are no longer listed
on Phlx.
The Exchange proposes to remove a reference to the Reduced Value
Nasdaq 100[supreg] Index or ``MNX'' within Options 4A, Section
12(a)(2)(I). Phlx delisted MNX on April 7, 2017 and removed references
to MNX in its rules.\19\
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\19\ See Securities Exchange Act Release No. 80474 (April 17,
2017), 82 FR 18795 (April 21, 2017) (SR-Phlx-2017-30).
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The Exchange proposes to remove the reference to ``Reduced value
long term options, also known as LEAPS'' as this phrase is not
necessary within Options 4A, Section 12(a)(2)(J). Options 4A, Section
12(b)(2) addresses Long-Term Option Series or ``LEAPS'' including those
for certain reduced value index options such as the Micro Index Long
Term Options Series.
The Exchange proposes to modify Options 4A, Section 12(a)(5) to
remove Phlx's Gold/Silver Sector\SM\ Index or ``XAU''<SUP>SM</SUP>.\20\
Today, XAU has an American-style \21\ expiration and is currently
reflected as having a European-style \22\ expiration in Options 4A,
Section 12(a)(5). In 2021, Phlx amended Options 4A, Section 12 to
reflect XAU as a having a European-tyle expiration; \23\ the change was
incorrect. XAU was originally filed as having an American-style
exercise and not a European-style-exercise.\24\ The Exchange proposes
to re-letter the remaining subparagraphs within Options 4A, Section
12(b)(5).
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\20\ Phlx's Gold/Silver Sector\SM\ Index or ``XAU''\SM\ is a
p.m.-settled capitalization-weighted index composed of the stocks of
widely held U.S. listed companies involved in the gold/silver mining
industry.
\21\ American-style exercise permits option holders to exercise
their options on any Exchange business day up to and including the
last business day immediately prior to the expiration date.
\22\ European-style exercise permits option holders only to
exercise their options on the expiration date.
\23\ See Securities Exchange Act Release No. 93898 (January 4,
2022), 87 FR1238 (January 10, 2022) (SR-Phlx-2021-76) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt
a New Options 4A, Sections 4 and 14, Related to Index Options, and
Amend Other Phlx Rules).
\24\ See Securities Exchange Act Release No. 20437 (December 2,
1983), 48 FR 55229 (December 9, 1983) (SR-Phlx-83-17). See also
Securities Exchange Act Release Nos. 37123 (April 18, 1996), 61 FR
18554 (April 25, 1996) (SR-Phlx-96-03); 43070 (July 25, 2000), 65 FR
47551 (August 2, 2000) (SR-Phlx-00-69); and 64549 (May 26, 2011), 76
FR 32004 (June 2, 2011) (SR-Phlx-2011-46).
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At this time, the Exchange proposes to add the Phlx Gold/Silver
Index to proposed new Options 4A, Section (a)(7) which would state,
``American-Style Exercise.'' American-style index options, some of
which may be A.M.-settled as provided in subparagraph (e) or P.M.-
settled as provided for in paragraph (f), are approved for trading on
the Exchange on the following indexes:.
The Exchange would list Phlx Gold/Silver Index within subparagraph
(i) and would list Phlx's Semiconductor Sector\SM\ Index or ``SOX''
\25\ within subparagraph (ii). Currently, SOX is not listed as either
having a European-style or American-style exercise within Options 4A,
Section 12. SOX has an American-style expiration \26\ and the Exchange
proposes to list the index as such.
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\25\ Phlx's Semiconductor Sector\SM\ Index or ``SOX''\SM\ is an
a.m.-settled modified market capitalization-weighted index composed
of companies primarily involved in the design, distribution,
manufacture, and sale of semiconductors.
\26\ See Securities Exchange Act Release No. 61539 (February 18,
2010), 75 FR 8765 (February 25, 2010) (SR-Phlx-2010-20).
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Next, the Exchange proposes to amend Options 4A, Section 12(e)(II)
to remove the Phlx Gold/Silver Sector Index from the list of a.m.-
settled options. In 2021, Phlx amended Options 4A, Section 12 to
reflect XAU as a having an a.m.-settlement; \27\ the change was
incorrect. The Phlx Gold/Silver Sector Index has always been a p.m.-
settled index option \28\ and the Exchange proposes to list the index
as such. The Exchange proposes to re-letter the remaining subparagraphs
within Options 4A, Section 12(e)(II).
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\27\ See Securities Exchange Act Release No. 93898 (January 4,
2022), 87 FR1238 (January 10, 2022) (SR-Phlx-2021-76) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt
a New Options 4A, Sections 4 and 14, Related to Index Options, and
Amend Other Phlx Rules).
\28\ See Securities Exchange Act Release Nos. 37123 (April 18,
1996), 61 FR 18554 (April 25, 1996) (SR-Phlx-96-03); 43070 (July 25,
2000), 65 FR 47551 (August 2, 2000) (SR-Phlx-00-69); and 64549 (May
26, 2011), 76 FR 32004 (June 2, 2011) (SR-Phlx-2011-46).
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At this time, the Exchange proposes to add the Phlx Gold/Silver
Sector Index to the list of p.m.-settled indexes within Options 4A,
Section 12(f).
Finally, the Exchange proposes to add a hyphen to the term ``Nasdaq
100'' within Options 4A, Sections 6 and 12 where the hyphen is missing.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\29\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\30\ 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.
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\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
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Option 3, Sections 4 and 5
The Exchange believes that its proposal to memorialize its bulk
message functionality within Options 3, Section 4(b)(3) is consistent
with the Act as it will codify existing functionality, thereby
promoting transparency in the Exchange's rules and reducing any
potential confusion.\31\ This functionality provides Market Makers with
an additional tool to meet their various quoting obligations in a
manner they deem appropriate, consistent with the purpose of the bulk
message functionality to facilitate Market Makers' provision of
liquidity. By providing Market Makers with additional control over the
quotes they use to provide liquidity to the Exchange, this tool may
benefit all investors through additional execution opportunities at
potentially improved prices. Today, MRX offers this same functionality
within Options 3, Section 4(b)(3). Further, the Exchange does not
believe that the offering the bulk message functionality to only Market
Makers would permit unfair discrimination. Market Makers play a unique
and critical role in the options market by providing liquidity and
active markets, and are subject to various quoting obligations which
other market participants are not, including obligations to maintain
active markets, update quotes in response to changed market conditions,
to compete with other Market Makers in its appointed classes, and to
provide intra-day quotes in its appointed classes.\32\ Bulk message
functionality provides Market Makers with a means to help them satisfy
these obligations. The proposed amendment to the Rulebook to add Phlx
Options 3, Section 4(b)(3) will not result in a System change.
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\31\ As discussed above, this existing functionality is
currently described in the Exchange's publicly available technical
specifications. See supra note 3.
\32\ See Options 2, Sections 4 and 5.
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The Exchange's proposal to amend Options 3, Section 4(b)(6) to make
clear that the actual price remains non-displayed during re-pricing is
consistent with the Act and removes impediments to and perfects the
mechanism of a free and open market and a national market system
because it displays a re-priced order that does not lock or cross an
away market. The rule text clearly explains that the best bid or offer
will
[[Page 45257]]
be non-displayed and the re-priced order will be displayed. A similar
change is proposed for Phlx Options 3, Section 5(d). MRX recently
amended Options 3, Section 4(b)(6) and Options 3, Section 5(d) to
include the same language.\33\ The proposed change aligns Phlx's rule
text to MRX's rule text. The proposed amendment to the Rulebook to add
Phlx Options 3, Section 4(b)(6) will not result in a System change.
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\33\ See SR-MRX-2022-16.
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The Exchange's proposal to add a new Options 3, Section 4(b)(7) to
clarify that, today, Phlx's System will automatically execute eligible
quotes using the Exchange's displayed best bid and offer (``BBO'') or
the Exchange's non-displayed order book (``internal BBO'') if the best
bid and/or offer on the Exchange has been repriced pursuant to Options
3, Section 5(d) and Options 3, Section 4(b)(6) is consistent with the
Act and protects investors and the public interest. This rule text
seeks to codify the current System function and make clear that the
internal BBO is comprised or both orders and quotes, both of which are
considered for price checks. MRX recently amended Options 3, Section
4(b)(7) to include this language.\34\ The proposed change aligns Phlx's
rule text to MRX's rule text. The proposed amendment to the Rulebook to
add Phlx Options 3, Section 4(b)(7) will not result in a System change.
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\34\ Id.
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Options 3, Section 7
The Exchange's proposal to amend the description of SQF within
Options 3, Section 7(e)(1)(B) is consistent with the Act as this rule
text is currently noted within Options 3, Section 7(a)(i)(B). The
addition of this language into the description of SQF provides a more
complete description of this protocol. The addition of this information
also aligns the level of information with that offered on MRX for SQF
within Options 3, Section 7(e)(1)(B). The proposed amendment to Phlx
Options 3, Section 7(e)(1)(B) will not result in a System change.
The Exchange's proposal to relocate, without amendment, the Legging
Order type from Phlx Options 3, Section 14(f)(iii)(C) to Options 3,
Section 7(b)(10) is a non-substantive amendment that will place the
order type with other simple order book order types.
Options 3, Section 8
The Exchange's proposal to amend Phlx Options 3, Section 8(j)(3) to
replace ``are marketable against the ABBO'' with ``cross the ABBO'' is
consistent with the Act as the proposed new language precisely
describes the specified scenario within in this rule. The Exchange
notes that this is not a System change, rather this amendment clarifies
the applicability of the rule text. This change is identical to a
change recently made on MRX at Options 3, Section 8(i)(3).\35\
---------------------------------------------------------------------------
\35\ See SR-MRX-2022-18.
---------------------------------------------------------------------------
The Exchange's proposal to amend Phlx Options 3, Section 8(k)(D) to
align Phlx's rule text with that of MRX Options 3, Section 8(j)(6)(i)
is consistent with the Act as the proposed language more explicitly
describes the manner in which the Exchange will re-price orders and
would mirror rule text in Phlx Options 3, Section 4(b)(6). The proposed
amendment to Phlx Options 3, Section 8(k)(D) will not result in a
System change.
Options 3, Section 10
The Exchange's proposal to amend Options 3, Section 10(a)(1)(C) to
add a sentence which states that ``This participation entitlement will
be considered after the Opening Process'' is consistent with the Act
because the NBBO would not be available pre-opening. The Exchange
proposes to add this language to provide clarity. The proposed
amendment to Phlx Options 3, Section 10(a)(1)(C) will not result in a
System change.
Options 3, Section 15
The Exchange's proposal to amend Phlx Options 3, Section 15(a)(1)
to align Phlx's OPP rule text to MRX's OPP rule text within Options 3,
Section 15(a)(1)(A) is consistent with the Act \36\ because removing
the references to ``Day Limit, Good til Cancelled, Immediate-or-Cancel
and All-or-None Orders'' and, instead, referring to ``Limit'' Orders
accurately captures the scope of the orders subject to OPP. This change
would also make unnecessary the reference to Market Orders. The
proposed amendment to Options 3, Section 15(a)(1) will not result in a
System change.
---------------------------------------------------------------------------
\36\ MRX recently amended its Order Price Protection (``OPP'')
rule. See SR-MRX-2022-18.
---------------------------------------------------------------------------
The Exchange's proposal to amend the ATR Rule within Options 3,
Section 15(b)(1) is consistent with the Act. MRX recently amended its
ATR rule.\37\ MRX's ATR rule utilized different rule text to explain
the ATR functionality. Amending Options 3, Section 15(b)(1)(A) to add
the internal BBO concept similar to language proposed for Options 3,
Sections 4 and 5 is consistent with the Act. Where a quote is re-priced
to avoid a locked or crossed market, the best bid or offer will be non-
displayed and the re-priced order will be displayed at a price that is
one minimum trading increment inferior to the ABBO. The best price on
the order book could therefore be non-displayed. The addition of this
language makes clear the manner in which the System calculates the
Reference Price.
---------------------------------------------------------------------------
\37\ See SR-MRX-2022-16.
---------------------------------------------------------------------------
Amending Phlx Section 15(b)(1) to add the words ``after the Posting
Period'' to explain when a new ATR would be calculated provides more
context to the rule will provide greater context to the sentence.
Additionally, adding the word ``quote'' in Options 3, Section
15(b)(1)(B) and (C), where it is omitted, will add clarity. The
proposed amendment to Options 3, Section 15(b)(1) will not result in a
System change. Also, adding rule text within Phlx Options 3, Section
15(b)(1)(D) to make clear the Exchange's ability to set different ATR
values by options category is consistent with the Act because the ATR
risk protection limits the range of prices at which an order and quote
trades and would take into account the minimum increment. The ability
for the Exchange to set the ATR based on the increment allows the
Exchange to set appropriate limits. The Exchange believes this rule
text will add greater clarity to the ATR rule. The proposed amendment
to Options 3, Section 15(b)(1) will not result in a System change.
Options 4A, Sections 6 and 12
The Exchange's proposal to remove the Russell Indexes from Options
4A, Sections 6(a)(i), (iii) and 6(c), as well as references within
Options 4A, Section 12(a)(2) and Supplementary Material .01 and .03 of
Options 4A, Section 12 is consistent with the Act and protect investors
and the public interest because options on the Russell Indexes are no
longer listed on Phlx.
The Exchange's proposal to remove a reference to the Reduced Value
Nasdaq 100[supreg] Index or ``MNX'' within Options 4A, Section
12(a)(2)(I) is consistent with the Act because Phlx delisted MNX on
April 7, 2017 \38\ and no longer trades MNX.
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\38\ See Securities Exchange Act Release No. 80474 (April 17,
2017), 82 FR 18795 (April 21, 2017) (SR-Phlx-2017-30).
---------------------------------------------------------------------------
The Exchange's proposal to remove the reference to ``Reduced value
long term options, also known as LEAPS'' is consistent with the Act
because Options 4A, Section 12(b)(2) addresses Long-Term Option Series
or ``LEAPS'' including those for certain reduced
[[Page 45258]]
value index options such as the Micro Index Long Term Options Series.
The Exchange's proposal to modify Options 4A, Section 12(a)(5) to
XAU from Options 4A, Section 12(a)(5) and add it to proposed new
Options 4A, Section (a)(7), relating to American-style exercise is
consistent with the Act and protect investors and the public interest
because it would reflect the indexes correct exercise style. XAU was
originally filed as having an American-style exercise and not a
European-style-exercise.\39\
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\39\ See Securities Exchange Act Release No. 20437 (December 2,
1983), 48 FR 55229 (December 9, 1983) (SR-Phlx-83-17). See also
Securities Exchange Act Release Nos. 37123 (April 18, 1996), 61 FR
18554 (April 25, 1996) (SR-Phlx-96-03); 43070 (July 25, 2000), 65 FR
47551 (August 2, 2000) (SR-Phlx-00-69); and 64549 (May 26, 2011), 76
FR 32004 (June 2, 2011) (SR-Phlx-2011-46).
---------------------------------------------------------------------------
The Exchange's proposal to list SOX within proposed new Options 4A,
Section (a)(7) is consistent with the Act and protect investors and the
public interest because it would reflect the indexes exercise style.
SOX has an American-style expiration \40\ and the Exchange proposes to
list the index as such.
---------------------------------------------------------------------------
\40\ See Securities Exchange Act Release No. 61539 (February 18,
2010), 75 FR 8765 (February 25, 2010) (SR-Phlx-2010-20).
---------------------------------------------------------------------------
The Exchange's proposal to amend Options 4A, Section 12(e)(II) to
remove XAU from the list of a.m.-settled options and add it to the list
of p.m.-settled indexes within Options 4A, Section 12(f) is consistent
with the Act and protect investors and the public interest because it
would reflect the indexes correct settlement style. XAU has always been
a p.m.-settled index option.\41\
---------------------------------------------------------------------------
\41\ See Securities Exchange Act Release Nos. 37123 (April 18,
1996), 61 FR 18554 (April 25, 1996) (SR-Phlx-96-03); 43070 (July 25,
2000), 65 FR 47551 (August 2, 2000) (SR-Phlx-00-69); and 64549 (May
26, 2011), 76 FR 32004 (June 2, 2011) (SR-Phlx-2011-46).
---------------------------------------------------------------------------
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.
Option 3, Sections 4 and 5
The Exchange believes that its proposal to memorialize its bulk
message functionality within Options 3, Section 4(b)(3) does not impose
an undue burden on intra-market competition. While the Exchange
currently offers this functionality to Market Makers only, bulk
messaging is intended to provide Market Makers with an additional tool
to meet their various quoting obligations in a manner they deem
appropriate. As such, the Exchange believes that this functionality may
facilitate Market Makers' provision of liquidity, thereby benefiting
all market participants through additional execution opportunities at
potentially improved prices. Furthermore, while the Exchange will offer
the proposed Post-Only Quote Configuration to Market Makers only, the
proposed risk protection will enhance the ability of Market Makers to
add liquidity and avoid removing liquidity from the Exchange's order
book in the manner described above. Greater liquidity benefits all
market participants by providing more trading opportunities and
attracting greater participation by Market Makers. The Exchange
believes that its proposal to memorialize its bulk message
functionality within Options 3, Section 4(b)(3) does not impose an
undue burden on inter-market competition as other options exchanges may
adopt this functionality.
The Exchange's proposal to amend Phlx's rules at Options 3, Section
4(b)(6) and Options 3, Section 4(b)(7) do not impose an undue burden on
competition because all options markets must not trade-through other
orders on their markets as well as away markets. The proposed change
aligns Phlx's rule text to MRX's rule text.
Options 3, Section 7
Amending the description of SQF within Options 3, Section
7(e)(1)(B) does not impose an undue burden on competition The addition
of this language into the description of SQF provides a more complete
description of this protocol.
The Exchange's proposal to relocate, without amendment, the Legging
Order type from Phlx Options 3, Section 14(f)(iii)(C) to Options 3,
Section 7(b)(10) is a non-substantive amendment that will place the
order type with other simple order book order types.
Options 3, Section 8
The Exchange's proposal to amend Phlx Options 3, Section 8(j)(3) to
replace ``are marketable against the ABBO'' with ``cross the ABBO''
does not impose an undue burden on competition, rather this proposed
new language precisely describes the specified scenario within in this
rule.
The Exchange's proposal to amend Phlx Options 3, Section 8(k)(D) to
align Phlx's rule text with that of MRX Options 3, Section 8(j)(6)(i)
does not impose an undue burden on competition, rather the proposed
language more explicitly describes the manner in which the Exchange
will re-price orders and would mirror rule text in Phlx Options 3,
Section 4(b)(6).
Options 3, Section 10
The Exchange's proposal to amend Options 3, Section 10(a)(1)(C) to
add a sentence which states that ``This participation entitlement will
be considered after the Opening Process'' is consistent with the Act
because the NBBO would not be available pre-opening. The Exchange
proposes to add this language to provide clarity. The proposed
amendment to Phlx Options 3, Section 10(a)(1)(C) will not result in a
System change.
Options 3, Section 15
The Exchange's proposal to amend Phlx Options 3, Section 15(a)(1)
to align Phlx's OPP rule text to MRX's OPP rule text within Options 3,
Section 15(a)(1)(A) does not impose an undue burden on competition
because removing the references to ``Day Limit, Good til Cancelled,
Immediate-or-Cancel and All-or-None Orders'' and, instead, referring to
``Limit'' Orders accurately captures the scope of the orders subject to
OPP. This change would also make unnecessary the reference to Market
Orders.
The Exchange's proposal to amend the ATR Rule within Options 3,
Section 15(b)(1) does not impose an undue burden on competition.
Amending Options 3, Section 15(b)(1)(A) to add the internal BBO concept
similar to language proposed for Options 3, Sections 4 and 5 does not
impose an undue burden on competition. Where a quote is re-priced to
avoid a locked or crossed market, the best bid or offer will be non-
displayed and the re-priced order will be displayed at a price that is
one minimum trading increment inferior to the ABBO. The best price on
the order book could therefore be non-displayed. The addition of this
language makes clear the manner in which the System calculates the
Reference Price.
Amending Phlx Section 15(b)(1) to add the words ``after the Posting
Period'' to explain when a new ATR would be calculated provides more
context to the rule will provide greater context to the sentence.
Additionally, adding the word ``quote'' in Options 3, Section
15(b)(1)(B) and (C), where it is omitted, will add clarity. Adding rule
text within Phlx Options 3, Section 15(b)(1)(D) to make clear the
Exchange's ability to set different ATR values by options category does
not impose an undue burden on competition because the ability for the
Exchange to set the ATR based on the increment allows the Exchange to
set appropriate limits. The
[[Page 45259]]
Exchange believes this rule text will add greater clarity to the ATR
rule.
Options 4A, Sections 6 and 12
The Exchange's proposal to remove the Russell Indexes from Options
4A, Sections 6(a)(i), (iii) and 6(c), as well as references within
Options 4A, Section 12(a)(2) and Supplementary Material .01 and .03 of
Options 4A, Section 12 does not impose an undue burden on competition
because no Phlx member or member organization would be able to trade
Russell Indexes.
The Exchange's proposal to remove a reference to the Reduced Value
Nasdaq 100[supreg] Index or ``MNX'' within Options 4A, Section
12(a)(2)(I) does not impose an undue burden on competition because Phlx
delisted MNX on April 7, 2017 \42\ and no member or member organization
may trade MNX.
---------------------------------------------------------------------------
\42\ See Securities Exchange Act Release No. 80474 (April 17,
2017), 82 FR 18795 (April 21, 2017) (SR-Phlx-2017-30).
---------------------------------------------------------------------------
The Exchange's proposal to remove the reference to ``Reduced value
long term options, also known as LEAPS'' does not impose an undue
burden on competition because all members and member organizations may
trade LEAPs on certain reduced value index options such as the Micro
Index Long Term Options Series pursuant to Options 4A, Section
12(b)(2).
The Exchange's proposal to modify Options 4A, Section 12(a)(5) to
XAU from Options 4A, Section 12(a)(5) and add it to proposed new
Options 4A, Section (a)(7), relating to American-style exercise does
not impose an undue burden on competition because it would reflect the
indexes correct exercise style. All Phlx members and member
organizations would be able to transact XAU with an American-style
exercise. The Exchange's proposal to list SOX within proposed new
Options 4A, Section (a)(7) does not impose an undue burden on
competition because it would reflect the indexes exercise style. All
Phlx members and member organizations would be able to transact SOX
with an American-style exercise. The Exchange's proposal to amend
Options 4A, Section 12(e)(II) to remove XAU from the list of a.m.-
settled options and add it to the list of p.m.-settled indexes within
Options 4A, Section 12(f) does not impose an undue burden on
competition because it would reflect the indexes correct settlement
style. All Phlx members and member organizations would be able to
transact XAU with a p.m.-settlement.
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 \43\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\44\
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\43\ 15 U.S.C. 78s(b)(3)(A)(iii).
\44\ 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.
---------------------------------------------------------------------------
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#186a6d747d357b7775757d766c6b586b7d7b367f776e"><span class="__cf_email__" data-cfemail="b5c7c0d9d098d6dad8d8d0dbc1c6f5c6d0d69bd2dac3">[email protected]</span></a>. Please include
file number SR-Phlx-2023-27 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-2023-27. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-Phlx-2023-27 and should be
submitted on or before August 4, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-14911 Filed 7-13-23; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.