Notice2023-20169
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 4, Rules 3301A and 3301B
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
September 19, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 180 (Tuesday, September 19, 2023)</title>
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[Federal Register Volume 88, Number 180 (Tuesday, September 19, 2023)]
[Notices]
[Pages 64504-64506]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-20169]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98377; File No. SR-Phlx-2023-43]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 4,
Rules 3301A and 3301B
September 13, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 5, 2023, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (the ``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 Equity 4, Rules 3301A and 3301B.\3\
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\3\ References herein to Phlx Rules in the 3000 Series shall
mean Rules in Phlx Equity 4.
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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 amendments to its Rules to address
inconsistencies between the Rule Text and observed System behavior as
well as behavior unaccounted for in the existing Rule text, as follows.
This proposal is similar to a rule change filed by the Exchange's
sister exchange, the Nasdaq Stock Market, LLC, on August 16, 2023.\4\
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\4\ See Securities Exchange Act Release No. 34-98225 (August 16,
2023), 88 FR 60255 (August 31, 2023) (SR-NASDAQ-2023-030). The
Exchange's proposal differs from that of Nasdaq in that it excludes
changes to Order Types and Attributes that are inapplicable to the
Exchange due to its absence of opening and closing crosses.
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First Rule Change
The first proposed rule change addresses an edge case of
inconsistency between the Rule text and System behavior, this time
regarding Market Maker Peg Orders.\5\ Rule 3301A states that, if after
entry of a Market Maker Peg
[[Page 64505]]
Order that has a displayed price based on the NBBO, and the NBBO
subsequently shifts such that the displayed price of the Market Maker
Peg Order to buy (sell) is equal to or greater (less) than the National
Best Bid (or National Best Offer), the Market Maker Peg Order will not
be subsequently repriced until a new reference price is established
that is more aggressive than the displayed price of the Market Maker
Peg Order. System testing revealed that the System does not reprice
Market Maker Peg Orders in this scenario, but only if such Orders are
in round lot sizes, whereas it does reprice such Orders when they are
in odd lot sizes. After evaluation, the Exchange determined to maintain
this System behavior and amend the Rule to conform to it. The Exchange
proposes to do so because the existing language proscribing repricing
only makes sense within the context of round lot Market Maker Peg
Orders, which this scenario would set a new NBBO and when they do so,
cannot reprice with respect to the reference price they just set. By
contrast, odd lot Market Maker Peg Orders are ineligible to set the
NBBO, and do not have this same problem. Accordingly, the Exchange
proposes to amend Rule 3301A to clarify that the prohibition against
repricing only applies to Market Maker Peg Orders in round lot sizes.
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\5\ Pursuant to Rule 3301B(b)(5)(A), a ``Market Maker Peg
Order'' is an Order Type designed to allow a Market Maker to
maintain a continuous two-sided quotation at a displayed price that
is compliant with the quotation requirements for Market Makers set
forth in Equity 2, Section 5(a)(2). The displayed price of the
Market Maker Peg Order is set with reference to a ``Reference
Price'' in order to keep the displayed price of the Market Maker Peg
Order within a bounded price range. The Reference Price for a Market
Maker Peg Order to buy (sell) is the then-current National Best Bid
(National Best Offer), or if no such National Best Bid or National
Best Offer, the most recent reported last-sale eligible trade from
the responsible single plan processor for that day, or if none, the
previous closing price of the security as adjusted to reflect any
corporate actions (e.g., dividends or stock splits) in the security.
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Second Rule Change
The second proposal would amend Equity 4, Rule 3301B(h), to correct
its description of behavior of the Non-Displayed portion of Orders with
the Reserve Attribute.\6\ Rule 3301B(h) provides as follows, in
pertinent part:
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\6\ ``Reserve Size'' is, in part, an Order Attribute that
``permits a Participant to stipulate that an Order Type that is
displayed may have its displayed size replenished from additional
non-displayed size.'' Rule 3301B(h). The Rule also states that
Reserve ``is not available for Orders that are not displayed;
provided, however, that if a Participant enters Reserve Size for a
Non-Displayed Order with a Time-in-Force of IOC, the full size of
the Order, including Reserve Size, will be processed as a Non-
Displayed Order.'' Id. In addition to the change proposed above, the
Exchange proposes to eliminate from the immediately preceding
language ``with a Time-in-Force of IOC'' because the Exchange does
not assess a reason to include this qualifier. The statement that a
Non-Displayed Order with Reserve will be entirely non-displayed is
true even as to Non-Displayed Orders with other TIFs.
In all cases, if the remaining size of the Non-Displayed Order
is less than the fixed or random amount stipulated by the
Participant, the full remaining size of the Non-Displayed Order will
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be displayed and the Non-Displayed Order will be removed.
As stated, this Rule requires that the entire Non-Displayed portion
of a Reserve Order will become Displayed the moment the size of the
Non-Displayed portion drops below an amount that a participant
designates or has directed the System to randomly designate (the ``Max
Floor''). In conducting a test of System behavior, however, the
Exchange observed that the System does not, in fact, operate in this
manner. Instead, the System maintains the Non-Displayed portion of a
Reserve Order as such when the size of that Non-Displayed Portion drops
below the Max Floor. Rather than correct the current System behavior to
match the Rule, the Exchange determined that users of Reserve Orders
prefer the current System behavior because it is true to the underlying
intent of Reserve functionality, which is to help limit the price
impacts of trading large quantities of shares by displaying only small
portions of such shares at a given time, while hiding the rest in
reserve. Thus, the Exchange proposes to address the inconsistency
between the Rule text and the behavior of the System by deleting the
aforementioned language from Rule 3301B(h). Going forward, the System
will not convert to a Displayed Order the Non-Displayed remainder of a
Reserve Order that falls below the Max Floor, and the System will not
remove it.
2. Statutory Basis
The Exchange believes that its proposals are consistent with
section 6(b) of the Act,\7\ in general, and further the objectives of
section 6(b)(5) of the Act,\8\ in particular, in that they are 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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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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It is consistent with the Act to amend the Exchange's Rules to
address inconsistencies between the Rule text and observed System
behavior, including by adapting the Rule text to codify observed System
behavior, where the observed behavior is more consistent with the
underlying purpose of an Order Attribute than is the Rule text
(maintaining the Non-Displayed status of a reserve portion of a Reserve
Order that drops below the Max Floor) and where System behavior
reflects a nuance not contemplated by the existing Rules (clarifying
that the prohibition against repricing Market Maker Peg Orders that
have prices equal to or better than the NBBO only applies to round lot
Market Maker Peg Orders, and not to odd lots).
Finally, it is consistent with the Act to amend Rule 3301B(h) to
delete qualifying language which erroneously suggests that Non-
Displayed Orders with Reserve are only non-displayed when such Orders
have a TIF of IOC. Investors and the public have an interest in the
Exchange maintaining a Rulebook that is accurate.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposals merely address
inconsistencies between Rule text and System behavior. The Exchange
neither intends nor perceives that these rule changes will have any
impact on competition.
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
The Exchange has filed the proposed rule change pursuant to section
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
Because the 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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\
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\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\ 17 CFR 240.19b-4(f)(6).
\11\ 15 U.S.C. 78s(b)(3)(A).
\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, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of such 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
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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 under section
19(b)(2)(B) \13\ of the Act to determine whether the proposed rule
change should be approved or disapproved.
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\13\ 15 U.S.C. 78s(b)(2)(B).
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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#86f4f3eae3abe5e9ebebe3e8f2f5c6f5e3e5a8e1e9f0"><span class="__cf_email__" data-cfemail="becccbd2db93ddd1d3d3dbd0cacdfecddbdd90d9d1c8">[email protected]</span></a>. Please include
file number SR-Phlx-2023-43 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-2023-43. 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-2023-43 and should be
submitted on or before October 10, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20169 Filed 9-18-23; 8:45 am]
BILLING CODE 8011-01-P
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