Notice2023-19731
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, Section 13 Concerning PIXL
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Published
September 13, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 176 (Wednesday, September 13, 2023)</title>
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[Federal Register Volume 88, Number 176 (Wednesday, September 13, 2023)]
[Notices]
[Pages 62863-62866]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-19731]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98320; File No. SR-PHLX-2023-41]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 3,
Section 13 Concerning PIXL
September 7, 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 August 30, 2023, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission
[[Page 62864]]
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. 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, Section 13,
Price Improvement XL (``PIXL'').
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
Phlx proposes to amend Options 3, Section 13, Price Improvement XL
(``PIXL''), to harmonize its price improvement rule text regarding
entry checks in Options 3, Section 13(a)(1) through (3) to mirror the
rule text of Nasdaq GEMX, LLC's (``GEMX''), Nasdaq MRX, LLC's
(``MRX''), and Nasdaq ISE, LLC's (``ISE'') PIM, and BX's PRISM, without
changing the substantive operations of these price improvement
auctions. The Exchange proposes to amend Options 3, Section 13(a)(1)
through (3) to harmonize the language, to the extent possible, with
other Nasdaq affiliated markets. The harmonization will allow market
participants to compare Phlx's PIXL entry checks with similar
mechanisms on Nasdaq affiliated markets.
The Exchange also proposes to make two technical amendments to
Options 4A at Section 6, Position Limits, and Section 12, Terms of
Index Options Contracts. The Exchange also proposes additional changes
described below.
PIXL Entry Checks
Phlx proposes to add ``a price that is'' to the end of Options 3,
Section 13(a)(1) and add new subparagraphs (A) and (B) to distinguish
opposite and same side checks for a PIXL Order for less than 50 options
contracts.\3\ The opposite side check for a PIXL Order for less than 50
options contracts is currently specified in the current rule text which
is being relocated to Options 3, Section 13(a)(1)(A). The same side
check for a PIXL Order for less than 50 options contracts currently
does not specify the NBBO check. Today, if the PIXL Order is for less
than 50 option contracts, and if the difference between the NBBO is
$0.01, the Initiating Member must stop the entire PIXL Order at a price
that is on the same side of the market as the PIXL Order, equal to or
better than the NBBO \4\ and better than any Limit Order on the Limit
Order Book. This language represents current System functionality.
Additionally, Phlx proposes to add more detail to describe the current
System functionality. If the PIXL Order is for a Non-Public Customer,
the PIXL Order must also be better than any quote on the same side of
the market as the PIXL Order. Today, the System will check if the PIXL
Order is better than any quote on the same side of the market as the
PIXL Order if the PIXL Order is for a Non-Public Customer. The addition
of this detail within Options 3, Section 13(a)(1)(B) will bring
transparency to the current System checks for a PIXL Order for less
than 50 options contracts.
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\3\ The proposed language below in Options 3, Section 13(a)(1)
through (3) excludes Complex Orders which are described in Options
3, Section 13(a)(4).
\4\ For example, if the market is 0.98 bid and 0.99 offer, a
Public Customer PRISM Order to buy for less than 50 contracts must
be stopped at 0.98 cents in this scenario to be accepted into a
PRISM Auction, provided there is no resting order or quote on the BX
order book at 0.98 in which case the PRISM Order would be rejected.
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Phlx proposes to amend Options 3, Section 13(a)(2) to add a ``:''
to the end of (a)(2) and add new subparagraphs (A) and (B) which
distinguish the opposite side and same side checks if the PIXL Order is
for the account of a Public Customer and such order is for 50 option
contracts or more. The opposite side check for a PIXL Order for the
account of a Public Customer for 50 option contracts or more is
currently specified in the current rule text, which is being relocated
to Options 3, Section 13(a)(2)(A). The same side check for a PIXL Order
for the account of a Public Customer for 50 option contracts or more
currently does not specify the manner in which the PIXL Order must
improve on the same side or the NBBO check. The Exchange proposes to
amend the same side check in Options 3, Section 13(a)(2)(B) to state
that if the PIXL Order is for the account of a Public Customer and such
order is for 50 option contracts or more, or if the difference between
the NBBO is greater than $0.01, the Initiating Member must stop the
entire PIXL Order at a price that is, on the same side of the market as
the PIXL Order, (1) at least $0.01 better than any Limit Order on the
Limit Order book; (2) at or better than the PIXL Order's limit price
(if the Order is a Limit Order); and equal to or better than the NBBO.
This rule text represents current System functionality. This new rule
text makes clear the various same side entry checks that are performed
by the current System.
Phlx proposes to amend Options 3, Section 13(a)(3) to add ``:'' to
the end of (a)(3) and add new subparagraphs (A) and (B) which
distinguish the opposite side and same side checks for a PIXL Order for
the account of a broker dealer or any other person or entity that is
not a Public Customer and such order is for 50 option contracts or
more. The Exchange currently does not specify the opposite side check
in the case whether the PIXL Order is for an account of a broker dealer
or any other person that is not a Public Customer and the order is for
50 contracts or more. The Exchange proposes to note the current entry
check performed by the System by amending the language in Options 3,
Section 13(a)(3)(A) to provide, if the PIXL Order is for the account of
a broker dealer or any other person or entity that is not a Public
Customer and such order is for 50 option contracts or more, or if the
difference between the NBBO is greater than $0.01, the Initiating
Member must stop the entire PIXL Order at a price that is: (A) equal to
or better than the NBBO and the internal market PBBO (the ``Reference
BBO'') on the opposite side of the market from the PIXL Order.\5\ This
language represents current System functionality. Phlx notes that the
Reference BBO was defined in Options 3, Section 13(a)(3)(A). The
Exchange proposes to amend the same side check in the case whether the
PIXL Order is for an account of a broker dealer or any other person
that is not a Public Customer and the order is for 50 contracts or
more. The Exchange proposes to state if the PIXL Order is for the
account of a broker dealer or any other person or entity that is not a
Public Customer and such order is for
[[Page 62865]]
50 option contracts or more, or if the difference between the NBBO is
greater than $0.01, the Initiating Member must stop the entire PIXL
Order at a price that is on the same side of the market as the PIXL
Order, the better of: (1) the Reference BBO price improved by at least
$0.01, (2) the PIXL Order's limit price (if the order is a Limit
Order), or (3) equal to or better than the NBBO. The Exchange is
removing the clause in current Options 3, Section 13(a)(3)(2) which the
Exchange believes is confusing as current Options 3, Section
13(a)(3)(1) notes the Reference BBO must be improved by at least $0.01.
Also, the NBBO entry check is being relocated to new subparagraph
(a)(3)(B)(3).
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\5\ The Exchange also proposes to amend Options 3, Section
13(a)(3)(B) to re-number current (A) and (B).
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Finally, the Exchange is making a technical amendment to Options 3,
Section 13(a)(4)(A) to remove a semicolon and replace it with a comma.
The Exchange believes that the proposed amendments will bring
greater clarity to the current System functionality as the various
System checks are noted for each side of the PIXL Order. Further, the
NBBO check is specifically noted as this check on the same side check
ensures the order does not trade-through. The Exchange is not
substantively amending the current System functionality.
Auction Process
The Exchange proposes a technical amendment to Options 3, Section
13(b)(4) to remove the ``an'' at the beginning of the paragraph as this
is unnecessary. Next, the Exchange proposes to replace references to
``Limit Order,'' ``order'' and ``orders'' within Options 3, Section
13(b)(4) with the word ``interest'' because an order or quote on the
order book may interact with a PIXL Order. This represents current
System functionality.
Finally, the Exchange proposes to amend Options 3, Section 13(b)(6)
to remove the term ``then-existing'' from the paragraph. The phrase is
not necessary as the clause ``cPBBO at the time of the conclusion of
the Auction'' makes clear which cPBBO will be referenced.
Technical Amendments
The Exchange proposes to make two technical amendments within
Options 4A, Options Index Rules. The Exchange proposes to renumber
Options 4A, Section 6(a)(iv) to Options 4A, Section 6(a)(ii). The
Exchange also proposes to re-letter Options 4A, Section 12(a)(2)(H),
(I) and (J), respectively, as Options 4A, Section 12(a)(2)(G), (H) and
(I).
2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\6\ in general, and furthers the objectives of section
6(b)(5) of the Act,\7\ 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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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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PIXL Entry Checks
Phlx's proposal to amend Options 3, Section 13(a)(1)-(3) to
harmonize the language within the PIXL entry checks with language
within GEMX's PIM, ISE's PIM, MRX's PIM and BX's PRISM, without
changing the substantive operations of these price improvement
auctions, is consistent with the Act and the protection of investors
and the general public because by utilizing similar language, market
participants will be able to compare Phlx's PIXL entry checks with
similar mechanisms on Nasdaq affiliated markets.
Amending Options 3, Section 13(a)(1) and adding new subparagraphs
(A) and (B) to distinguish opposite and same side checks for a PIXL
Order for less than 50 options contracts and specifying the same side
NBBO check is consistent with the Act and the protection of investors
and the general public because it will add more detail to describe the
current System functionality. The NBBO check is always relevant in the
same side check to avoid a trade-through. Specifying that if the PIXL
Order is for a Non-Public Customer, the PIXL Order must also be better
than any quote on the same side of the market as the PIXL Order is
consistent with the Act so that the PIXL Order improves the order book
and provides a meaningful opportunity for price improvement. Further,
the addition of this detail within Options 3, Section 13(a)(1)(B) will
bring transparency to the current System checks for a PIXL Order for
less than 50 options contracts.
Amending Options 3, Section 13(a)(2) to add new subparagraphs (A)
and (B) to distinguish the opposite side and same side checks if the
PIXL Order is for the account of a Public Customer and such order is
for 50 option contracts or more, and specifying the manner in which the
PIXL Order must improve on the same side or the NBBO check is
consistent with the Act and the protection of investors and the general
public. The Exchange currently requires, if the PIXL Order is for the
account of a Public Customer and such order is for 50 option contracts
or more, that the PIXL Order must be at or better than the PIXL Order's
limit price and it must also not trade-through the order book. The
eligibility requirements if the PIXL Order is for the account of a
Public Customer and such order is for 50 option contracts or more
should provide a meaningful opportunity for price improvement, and
thereby benefit investors and others in a manner that is consistent
with the Act.
Amending Options 3, Section 13(a)(3) to add new subparagraphs (A)
and (B) to distinguish the opposite side and same side checks for a
PIXL Order for the account of a broker dealer or any other person or
entity that is not a Public Customer and such order is for 50 option
contracts or more and specifying the opposite side check and same side
NBBO check is consistent with the Act and the protection of investors
and the general public. The opposite side check must be equal to or
better than the NBBO and any non-displayed order on the Exchange's
order book to avoid a trade-through. Also, the NBBO check is always
relevant in the same side check to avoid a trade-through. The
eligibility requirements if the PIXL Order is for the account of a
broker dealer or any other person or entity that is not a Public
Customer and such order is for 50 option contracts or more should
provide a meaningful opportunity for price improvement, and thereby
benefit investors and others in a manner that is consistent with the
Act.
The Exchange believes that the proposed amendments will bring
greater clarity to the current System functionality as the various
System checks are noted for each side of the PIXL Order. Further, the
NBBO check is specifically noted as this check on the same side check
ensures the order does not trade-through. The Exchange is not
substantively amending the current System functionality.
Auction Process
The Exchange's proposal to amend Options 3, Section 13(b)(4) to
replace references to ``Limit Order,'' ``order'' and ``orders'' with
the word ``interest'' is consistent with the Act and the protection of
investors and the general public because an order or quote on the order
book may currently interact with a PIXL Order. The proposed rule text
makes clear that a quote will participate in a PIXL as unrelated
marketable interest. The clarification will make the rule text
transparent.
Amending Options 3, Section 13(b)(6) to remove the term ``then-
existing'' from the paragraph is consistent with the Act
[[Page 62866]]
because the phrase is not necessary as the subsequent clause makes
clear which cPBBO will be referenced.
Technical Amendments
The Exchange's proposal to make two technical amendments within
Options 4A, Options Index Rules, are consistent with the Act as the
amendments to Options 4A, Sections 6 and 12 are non-substantive.
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.
PIXL Entry Checks
Phlx's proposal to amend Options 3, Section 13(a)(1)-(3) to
harmonize the language within the PIXL entry checks with language
within GEMX's PIM, ISE's PIM, MRX's PIM and BX's PRISM, without
changing the substantive operations of these price improvement
auctions, does not impose an undue burden on competition because market
participants will be able to compare Phlx's PIXL entry checks with
similar mechanisms on Nasdaq affiliated markets.
Amending Options 3, Section 13(a)(1)-(3) to specify the entry
checks that are utilized by Phlx's System today to initiate a PIXL does
not impose an undue burden on competition because these checks will
apply uniformly to any order entered into PIXL. Further, the proposed
amendments will add transparency to the current System functionality as
the various System checks are noted for each side of the PIXL Order.
Further, the Exchange is not substantively amending the current System
functionality.
Auction Process
The Exchange's proposal to amend Options 3, Section 13(b)(4) to
replace references to ``Limit Order,'' ``order'' and ``orders'' within
Options 3, Section 13(b)(4) with the word ``interest'' does not impose
an undue burden on competition because all quotes will participate in a
PIXL as an unrelated order. The clarification will make the rule text
transparent.
Amending Options 3, Section 13(b)(6) to remove the term ``then-
existing'' from the paragraph does not impose an undue burden on
competition because the phrase is not necessary as the subsequent
clause makes clear which cPBBO will be referenced.
Technical Amendments
The Exchange's proposal to make two technical amendments within
Options 4A, Options Index Rules, do not impose an undue burden on
competition as the amendments to Options 4A, Sections 6 and 12 are non-
substantive.
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 after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to section 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6)
thereunder.\9\
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 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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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#c5b7b0a9a0e8a6aaa8a8a0abb1b685b6a0a6eba2aab3"><span class="__cf_email__" data-cfemail="aad8dfc6cf87c9c5c7c7cfc4ded9ead9cfc984cdc5dc">[email protected]</span></a>. Please include
file number SR-PHLX-2023-41 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-2023-41. 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-2023-41 and should be
submitted on or before October 4, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19731 Filed 9-12-23; 8:45 am]
BILLING CODE 8011-01-P
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