Notice2025-16698
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Permit Customer Cross Orders and Complex Customer Cross Orders as a Remote FBMS Transaction
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 2, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 167 (Tuesday, September 2, 2025)</title>
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[Federal Register Volume 90, Number 167 (Tuesday, September 2, 2025)]
[Notices]
[Pages 42488-42496]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-16698]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103781; File No. SR-Phlx-2025-39]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Permit Customer
Cross Orders and Complex Customer Cross Orders as a Remote FBMS
Transaction
August 27, 2025.
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 14, 2025, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items 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 Options 3, Section 8, Options
Opening Process; Options 3, Section 9, Trading Halts; Options 3,
Section 10, Electronic Execution Priority and Processing in the System;
Options 3, Section 14, Complex Orders; Options 5, Section 4, Order
Routing; Options 8, Section 2, Definitions; Options 8, Section 30,
Crossing, Facilitation and Solicited Orders; Options 8, Section 32,
Types of Floor-Based (Non-System) Orders; and Options 8, Section 34,
FLEX Index, Equity, and Currency Options in connection with a
technology migration.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rulefilings">https://listingcenter.nasdaq.com/rulebook/phlx/rulefilings</a>
and at the principal office of the Exchange.
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
In connection with a technology migration to an enhanced Nasdaq,
Inc. (``Nasdaq'') functionality which will result in higher
performance, scalability, and more robust architecture, the Exchange
intends to adopt certain trading functionality currently utilized at
Nasdaq affiliate exchanges. As further discussed below, the Exchange is
proposing to adopt such functionality substantially in the same form as
currently on the Nasdaq affiliated options exchanges, while retaining
certain intended differences between it and its affiliates. The
Exchange also proposes amendments to harmonize the Exchange's rules
where appropriate with the rules of its affiliated options exchanges by
using consistent language to describe identical functionality.
Specifically, Phlx proposes to amend Options 3, Section 8, Options
Opening Process; Options 3, Section 9, Trading Halts; Options 3,
Section 10, Electronic Execution Priority and Processing in the System;
Options 3, Section 14, Complex Orders; Options 5, Section 4, Order
Routing; Options 8, Section 2, Definitions; Options 8, Section 30,
Crossing, Facilitation and Solicited Orders; Options 8, Section 32,
Types of Floor-Based (Non-System) Orders; and Options 8, Section 34,
FLEX Index, Equity, and Currency Options in connection with a
technology migration. Each change will be described below.
Options Opening Process
The Exchange proposes to amend its Opening Process at Options 3,
Section 8(k)(C)(5) to remove the following language, ``unless the
member that submitted the original order has instructed the Exchange in
writing to reenter the remaining size, in which case the remaining size
will be automatically submitted as a new order.'' Today, Phlx may
conduct a Forced Opening if the option series has not opened after
acceptance of new interest that updated the Potential Opening Price
after additional Imbalance Messages have been sent. Today, during a
Forced Opening, any unexecuted interest from the imbalance not traded
or routed will be cancelled back to the entering participant if they
remain unexecuted and priced through the Opening Price, unless the
member that submitted the original order has instructed the Exchange in
writing to reenter the remaining size, in which case the remaining size
will be automatically submitted as a new order. With the technology
migration, identical to Nasdaq ISE, LLC (``ISE'') Options 3, Section
8(j)(5), any unexecuted interest from the imbalance not traded or
routed will be cancelled back to the entering participant if they
remain unexecuted and priced through the Opening Price. Phlx will not
accept an instruction in writing to re-enter the remaining size. While
the Exchange will not automatically re-enter the order as per an
instruction, the member could elect to re-enter the order themselves.
By removing this rule text, Phlx's System behavior will align with ISE
in the event of a Forced Opening.
Trading Halts
The Exchange proposes to modify Options 3, Section 9(f) which
currently states that during a halt, the Exchange will maintain
existing orders on the book (but not existing quotes), accept orders
and quotes, and process cancels. The Exchange proposes to note that
with the technology migration the Exchange will process modifications
during a trading halt. This rule text is identical to ISE Options 3,
Section 9(a)(2). With this proposal, Phlx's System behavior will align
with ISE in the event of a trading halt.
Electronic Execution Priority and Processing in the System
The Exchange proposes to correct a reference to a citation in
Options 3, Section 10, Electronic Execution Priority and Processing in
the System. Specifically, the Exchange proposes to amend a citation in
Options 3, Section 10(a)(1)(B) to ``(a)(i)(E).'' The correct citation
should be (a)(1)(E).
[[Page 42489]]
Complex Orders
The Exchange recently amended its complex order rules.\3\ The
Exchange proposes to make a technical amendment to Options 3, Section
14(c)(2) to remove a stray ``a'' from the sentence that states,
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\3\ See Securities Exchange Act Release No. 102862 (April 15,
2025), 90 FR 16731 (April 21, 2025) (SR-Phlx-2025-17) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Amend
Phlx's Complex Order Functionality). SR-Phlx-2025-17 proposed the
same operative date as this proposal as they are both part of the
same technology migration.
Notwithstanding the provisions of Options 3, Section 10: (i) a
Complex Options Strategies may be executed at a total credit or
debit price with one other member organization without giving
priority to bids or offers established on the Exchange that are no
better than the bids or offers in the individual options series
comprising such total credit or debit; provided, however, that if
any of the bids or offers established on the Exchange consist of a
Public Customer Order, the price of at least one leg of the complex
strategy must trade at a price that is better than the corresponding
bid or offer on the Exchange by at least one minimum trading
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increment for the series as defined in Options 3, Section 3.
With respect to the execution of complex strategies, the Exchange
noted at Options 3, Section 14(d)(2)(i) and (ii) that it would execute
in time priority or pro-rata based on size according to Options 3,
Section 10(a)(1)(E) and (F). The Exchange noted in its 19b4 that,
Public Customer Orders on the single leg order book shall retain
priority and will execute prior to any other Complex Order or non-
Public Customer single leg interest at the same price. Stock Option
Orders and Stock Complex Orders will be executed at the best net
price available from Complex Order Exposure pursuant to proposed
Supplementary Material .01 to Options 3, Section 14 and executable
Complex Orders on the Complex Order Book. The Exchange may designate
on a class basis whether bids and offers at the same price on the
Complex Order Book will be executed: (i) in time priority; or (ii)
pro-rata based on size pursuant to Options 3, Section 10(a)(1)(E)
and (F).\4\
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\4\ See id at 16747.
The Exchange noted in footnote 93 of SR-Phlx-2025-17 that Phlx will
retain its allocation methodology in Options 3, Section 10.\5\ At this
time, the Exchange proposes to amend the rule text at Options 3,
Section 14(d)(2)(ii) to include the reference to the Public Customer
allocation that was inadvertently excluded. Options 3, Section 14(d)
addresses the Public Customer priority on the single-leg book in the
current text, ``. . . executable Complex Options Orders will execute
against Public Customer interest on the single leg book at the same
price before executing against the Complex Order Book. Thus, Public
Customer Orders on the single leg order book shall retain priority and
will execute prior to any other Complex Order or non-Public Customer
single leg interest at the same price.'' The Exchange proposed in SR-
Phlx-2025-17 to offer Public Customer priority on the Complex Order
Book as described in Options 3, Section 10(a)(1)(A).\6\ The Exchange
notes that the current citation in Options 3, Section 14(d)(2)(ii) is
to the Market Maker Priority and all other market participant
allocations. The Exchange proposes to amend Options 3, Section
14(d)(2)(ii) to add the citation to Options 3, Section 10(a)(1)(A) for
accuracy, to reflect the Public Customer Priority, and to comport with
the discussion in SR-Phlx-2025-17.
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\5\ See Securities Exchange Act Release No. 102862 (April 15,
2025), 90 FR 16731 (April 21, 2025) (SR-Phlx-2025-17) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Amend
Phlx's Complex Order Functionality). SR-Phlx-2025-17 proposed the
same operative date as this proposal as they are both part of the
same technology migration.
\6\ See id.
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Routing
The Exchange proposes to amend its routing rule at Options 5,
Section 4. The Exchange proposes to capitalize the defined term
``Routing Timer'' and amend the word ``timer'' to ``Routing Timer'' for
clarity in the use of the word in Options 5, Section 4(a)(iii)(B)(2)
and Options 5, Section 4(a)(iii)(C)(5). The Exchange inadvertently
noted ``Opening Price'' in Options 5, Section 4(a)(iii)(B)(3) and (4)
that should instead state ``Opening Process.''
The Exchange proposes to remove the word ``internal'' before
``PBBO'' in multiple places.\7\ Today, Phlx Legging Orders \8\ may be
generated and executed in an increment other than the minimum increment
for that series and are ranked on the order book at its generated price
and displayed at a price that is rounded to the nearest minimum
increment for that series.\9\ Phlx recently amended \10\ its Legging
Order rules so that Legging Orders will be generated and executed in
the minimum increment for that options series pursuant to Options 3,
Section 3. As a result of the amendment in SR-Phlx-2025-17 to the
functionality, the Exchange proposes to remove the reference to
``internal'' which is no longer necessary because Legging Orders will
generate and display at minimum increments. More specifically, today,
the internal BBO reference in the routing rule is being utilized where
the Legging Order, which is displayed at a price that is rounded to the
nearest minimum increment for that series, is repriced pursuant to
Options 3, Section 5(d) to avoid locking or crossing.\11\ With the
amendment in SR-Phlx-2025-17, the Legging Order would no longer display
at a price that is rounded to the nearest minimum increment, therefore
the internal BBO would be equal to the ABBO or the ABBO would be better
than the internal PBBO on the same side of the market indicating that
there was a locked or crossed market present. Similar to ISE Section
4(a)(iii)(B)(4), (5) and (7) and Section 4(a)(iii)(C)(5) the Exchange
proposes to remove the word ``internal'' from Phlx Options 5, Section
4(a)(iii)(B)(4), (5) and (7) and Section 4(a)(iii)(C)(5).
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\7\ The ``internal PBBO'' is defined as the Exchange's non-
displayed order book.
\8\ A Legging Order is a Limit Order on the regular order book
in an individual series that represents one leg of a two-legged
Complex Order (which improves the cPBBO) that is to buy or sell an
equal quantity of two options series resting on the CBOOK. Legging
Orders are firm orders that are included in the Exchange's displayed
best bid or offer. Legging Orders are not routable and are Limit
Orders with a time-in-force of DAY, as they represent an individual
component of a Complex Order. See Options 3, Section 7(b)(10).
\9\ See Options 3, Section 7(b)(10)(B).
\10\ The Exchange amended Legging Orders in SR-Phlx-2025-17. See
Securities Exchange Act Release No. 102862 (April 15, 2025), 90 FR
16731 (April 21, 2025) (SR-Phlx-2025-17) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change to Amend Phlx's
Complex Order Functionality). SR-Phlx-2025-17 proposed the same
operative date as this proposal as they are both part of the same
technology migration.
\11\ Options 3, Section 5(d) provides that an order will not be
executed at a price that trades through another market or displayed
at a price that would lock or cross another market. An order that is
designated by the member as routable will be routed in compliance
with applicable Trade-Through and Locked and Crossed Markets
restrictions. An order that is designated by a member as non-
routable will be re-priced in order to comply with applicable Trade-
Through and Locked and Crossed Markets restrictions. If, at the time
of entry, an order that the entering party has elected not to make
eligible for routing 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.
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Also, the Exchange proposes to correct an incorrect cross citation
in Options 5, Section 4(a)(iii)(C)(6) to subparagraph ``4'' which
should be subparagraph ``5'' and remove an errant ``is'' in that
paragraph. Finally, the Exchange proposes to remove an errant
``including'' in Options 5, Section 4(a)(iii)(C)(8).
Customer Cross Orders
Today, pursuant to Options 8, Section 30(a), an Options Floor
Broker who holds orders to buy and sell the same
[[Page 42490]]
option series (including two Public Customer Orders) may cross such
orders, provided the Options Floor Broker request bids and offers for
such options series and make all persons in the trading crowd aware of
his request.\12\ After providing an opportunity for such bids and
offers to be made, the Floor Broker must bid and offer at prices
differing by the minimum increment and must improve the market by
bidding above the highest bid or offering below the lowest offer.\13\
Finally, if such higher bid or lower offer is not taken, the Floor
Broker may cross the orders at such higher bid or lower offer by
announcing by public outcry that he is crossing and giving the quantity
and price.\14\ Pursuant to Supplementary Material .02(iv) of Options 8,
Section 30, a Floor Broker must disclose on its order ticket for any
order which is subject to crossing, all of the terms of such order,
including any contingency involving, and all related transactions in,
either options or, in the case of equity or index options, underlying
or related securities. The Floor Broker, in the case of equity or index
options, must disclose all securities that are components of the Public
Customer order which is subject to crossing before requesting bids and
offers for the execution of all components of the order. Pursuant to
Supplementary Material .02(vii) of Options 8, Section 30, the members
of the trading crowd who established the market will have priority over
all other orders that were not represented in the trading crowd at the
time that the market was established (but not over Public Customer
orders on the book) and will maintain priority over such orders except
for orders that improve upon the market.
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\12\ See Options 8, Section 30(a)(1). Public Customer Orders may
be crossed in non-conforming spread ratios. See also Options 8,
Section 24(h).
\13\ See Options 8, Section 30(a)(2).
\14\ See Options 8, Section 30(a)(3).
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At this time, in addition to representations of Public Customer
orders subject to Options 8, Section 30 in open outcry, the Exchange
proposes to permit Floor Brokers to execute Customer Cross Orders and
Complex Customer Cross Orders as a Remote FBMS Transaction, similar to
Qualified Contingent Cross Orders.\15\ Phlx recently adopted rules that
permit electronic members and member organizations to enter Customer
Cross Orders and Complex Customer Cross Orders.\16\ This proposal would
permit Phlx floor members to also enter Customer Cross Orders and
Complex Customer Cross Orders without the need for order exposure,
provided the member complied with the elements in the proposed rules.
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\15\ See Options 8, Section 2(a)(10).
\16\ See Securities Exchange Act Release No. 103667 (August 8,
2025), 90 FR 39042 (August 13, 2025) (SR-Phlx-2025-35) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
PIXL and Adopt New Auctions).
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The Exchange proposes to describe a Customer Cross Order at Options
8, Section 32(f) as comprised of a Public Customer Order to buy and a
Public Customer Order to sell at the same price and for the same
quantity. Such orders will trade in accordance with Options 8, Section
30(f). Further, the Exchange proposes to note at proposed Options 8,
Section 32(g) that, ``[A] Complex Customer Cross Order is comprised of
a Priority Customer Complex Order to buy and a Priority Customer
Complex Order to sell at the same price and for the same quantity. Such
orders will trade in accordance with Options 8, Section 30(g).'' The
Exchange would also re-letter Options 8, Section 32(h) through (i). The
Exchange proposes to amend Options 8, Section 39 at E-11, Two-Way,
Three Way and Multi-Spread Transactions (FOREIGN CURRENCY OPTION ONLY),
to update the current reference to Options 8, Section 32(f) to new
``k'' due to the re-lettering.
The Exchange proposes to amend Options 8, Section 30 to add a new
``f'' related to Customer Cross Orders. Pursuant to proposed Options 8,
Section 30(f), Customer Cross Orders would be automatically executed
upon entry provided that the execution is at or between the best bid
and offer on the Exchange and (i) is not at the same price as a Public
Customer Order on the Exchange's limit order book and (ii) will not
trade through the NBBO similar to the manner in which such orders are
executed on the electronic order book.\17\ Pursuant to proposed Options
8, Section 30(f)(1), Customer Cross Orders will be automatically
canceled if they cannot be executed. Pursuant to proposed Options 8,
Section 30(f)(2), Customer Cross Orders may only be entered in the
regular trading increments applicable to the options class under
Options 3, Section 3. Finally, pursuant to proposed Options 8, Section
30(f)(3), Options 3, Section 22(b)(1) applies to the entry and
execution of Customer Cross Orders.\18\ With this proposal, the
execution of a Customer Cross Order from the trading floor would
continue to not be at the same price as a Public Customer Order on the
Exchange's limit order book, nor trade through the NBBO.
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\17\ See Options 3, Section 12(a). See Securities Exchange Act
Release No. 103667 (August 8, 2025), 90 FR 39042 (August 13, 2025)
(SR-Phlx-2025-35) (Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend PIXL and Adopt New Auctions).
\18\ Options 3, Section 22(b)(1) provides that the Limitations
on Principal Transactions Rule in Options 3, Section 22(b) prevents
a member from executing agency orders to increase its economic gain
from trading against the order without first giving other trading
interest on the Exchange an opportunity to either trade with the
agency order or to trade at the execution price when the Member was
already bidding or offering on the book. However, the Exchange
recognizes that it may be possible for an member to establish a
relationship with a customer or other person (including affiliates)
to deny agency orders the opportunity to interact on the Exchange
and to realize similar economic benefits as it would achieve by
executing agency orders as principal. It will be a violation of this
Rule for a member to be a party to any arrangement designed to
circumvent this Rule by providing an opportunity for a customer or
other person (including affiliates) to regularly execute against
agency orders handled by the member immediately upon their entry
into the System.
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The Exchange proposes to amend Options 8, Section 30 to add a new
paragraph ``g'' related to Complex Customer Cross Orders. Complex
Customer Cross Orders would execute in the same manner as they execute
electronically on Phlx.\19\ Proposed Options 8, Section 32(g) provides
that Complex Customer Cross Orders may be entered as described in
proposed Options 8, Section 30(g), which states that such orders will
be automatically executed upon entry so long as: (i) the price of the
transaction is at or within the best bid and offer for the same complex
strategy on the Complex Order Book; (ii) there are no Public Customer
Complex Orders for the same strategy at the same price on the Complex
Order Book; and (iii) the options legs can be executed at prices that
comply with the provisions of Options 3, Section 14(c)(2).\20\ Proposed
Options 8, Section
[[Page 42491]]
30(g) provides that only Complex Customer Cross Orders with a
conforming ratio as defined in Options 1, Section 1(b)(13) will be
accepted. Additionally, proposed Options 8, Section 30(g) states that a
Complex Customer Cross Orders will be rejected if they cannot be
executed. Finally, proposed Options 8, Section 30(g) states that
Options 3, Section 22(b)(1) applies to Complex Customer Cross Orders.
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\19\ See Options 3, Section 12(b). See also Securities Exchange
Act Release No. 103667 (August 8, 2025), 90 FR 39042 (August 13,
2025) (SR-Phlx-2025-35) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend PIXL and Adopt New
Auctions). SR-Phlx-2025-35 proposed the same operative date as this
proposal as they are both part of the same technology migration.
\20\ Phlx Options 3, Section 14(c)(2)(i) states, a Complex
Options Strategies may be executed at a total credit or debit price
with one other Member without giving priority to bids or offers
established on the Exchange that are no better than the bids or
offers in the individual options series comprising such total credit
or debit; provided, however, that if any of the bids or offers
established on the Exchange consist of a Public Customer Order, the
price of at least one leg of the complex strategy must trade at a
price that is better than the corresponding bid or offer on the
Exchange by at least one minimum trading increment for the series as
defined in Options 3, Section 3. Phlx separately filed a proposal to
adopt Complex Order functionality identical to ISE Options 3,
Section 14 with SR-Phlx-2024-17. See Securities Exchange Act Release
No. 102862 (April 15, 2025), 90 FR 16731 (April 21, 2025) (SR-Phlx-
2025-17) (Notice of Filing and Immediate Effectiveness of Proposed
Rule Change to Amend Phlx's Complex Order Functionality). SR-Phlx-
2025-17 proposed the same operative date as this proposal as they
are both part of the same technology migration.
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Proposed Options 8, Section 30(g)(1) states that Floor Brokers may
only submit Complex Customer Cross Orders with a stock/ETF component if
such orders comply with the Qualified Contingent Trade Exemption from
Rule 611(a) of Regulation NMS. A Qualified Contingent Trade is a
transaction consisting of two or more component orders, executed as
agent or principal, that satisfy the six elements in the Commission's
order exempting Qualified Contingent Trades (``QCTs'') from the
requirements of Rule 611(a),\21\ which requires trading centers to
establish, maintain, and enforce written policies and procedures that
are reasonably designed to prevent trade-throughs.\22\ Further proposed
Options 8, Section 30(g)(1) provides that Floor Brokers submitting such
orders with a stock/ETF component represent that such orders comply
with the Qualified Contingent Trade Exemption. Member organizations of
FINRA or The Nasdaq Stock Market (``Nasdaq'') will be required to have
a Uniform Service Bureau/Executing Broker Agreement (``AGU'') with
Nasdaq Execution Services, LLC (``NES'') \23\ in order to trade orders
containing a stock/ETF component; firms that are not members of FINRA
or Nasdaq are required to have a Qualified Special Representative
(``QSR'') arrangement with NES in order to trade orders containing a
stock/ETF component.\24\ These aforementioned requirements are
identical to the requirements for entering Complex Customer Cross
Orders with a stock/ETF component pursuant to Options 3, Section
12(b)(1).\25\
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\21\ 17 CFR 242.611(a).
\22\ See Securities Exchange Act Release Nos. 57620 (April 4,
2008), 73 FR 19271 (April 9, 2008) (``QCT Exemptive Order''). See
also Securities Exchange Act Release No. 54389 (August 31, 2006), 71
FR 52829 (September 7, 2006). The QCT Exemption applies to trade-
throughs caused by the execution of an order involving one or more
NMS stocks that are components of a ``qualified contingent trade.''
As described more fully in the QCT Exemptive Order, a qualified
contingent trade is a transaction consisting of two or more
component orders, executed as principal or agent, where: (1) At
least one component order is an NMS stock; (2) all components are
effected with a product or price contingency that either has been
agreed to by the respective counterparties or arranged for by a
broker-dealer as principal or agent; (3) the execution of one
component is contingent upon the execution of all other components
at or near the same time; (4) the specific relationship between the
component orders (e.g., the spread between the prices of the
component orders) is determined at the time the contingent order is
placed; (5) the component orders bear a derivative relationship to
one another, represent different classes of shares of the same
issuer, or involve the securities of participants in mergers or with
intentions to merge that have been announced or since cancelled; and
(6) the Exempted NMS Stock Transaction is fully hedged (without
regard to any prior existing position) as a result of the other
components of the contingent trade.
\23\ NES is a broker-dealer owned and operated by Nasdaq, Inc.
NES, an affiliate of the Exchange, has been approved by the
Commission to become a Member of the Exchange and perform inbound
routing on behalf of the Exchange. NES is a registered broker-dealer
and member of various exchanges and the Financial Industry
Regulatory Authority (``FINRA'').
\24\ See proposed Options 8, Section 30(g)(1).
\25\ Options 3, Section 12(b)(1) was adopted in SR-Phlx-2025-35.
See also Securities Exchange Act Release No. 103667 (August 8,
2025), 90 FR 39042 (August 13, 2025) (SR-Phlx-2025-35) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
PIXL and Adopt New Auctions). SR-Phlx-2025-35 proposed the same
operative date as this proposal as they are both part of the same
technology migration.
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Today, on Phlx, NES performs the same functions with respect to
execution, reporting and submission of the underlying stock or ETF
component of a Complex Order that it would perform with these
amendments for the underlying stock or ETF component of a Complex Order
that is entered into FBMS from the trading floor or electronically.\26\
The proposed language describing NES applies today to Complex Orders
executed on Phlx and would likewise apply to this proposed rule in that
NES would execute, report and submit of the underlying stock or ETF
component of a Complex Order for a Complex Customer Cross Order.\27\
Today, on Phlx, NES is responsible for the proper execution, trade
reporting, and submission to clearing of the underlying stock or ETF
component of a Complex Order.\28\ Because these trades with a stock
component occur off-exchange, the principal regulator is FINRA; \29\
the execution and reporting of the stock/ETF piece occur otherwise than
on Phlx or any other exchange. The stock execution is handled by NES
pursuant to applicable rules regarding equity trading,\30\ including
the rules governing trade reporting, trade-throughs and short sales.
Specifically, NES reports the trades to the Trade Reporting
Facility.\31\ Firms that are members of FINRA are required to have an
AGU with NES in order to trade Complex Orders containing a stock/ETF
component pursuant to proposed Options 8, Section 30(g)(1). Firms that
are not members of FINRA are required to have a QSR arrangement with
NES in order to trade Complex Orders containing a stock/ETF component
pursuant to proposed Options 8, Section 30(g)(1).
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\26\ See Phlx Supplementary .07 to Options 3, Section 14 as
adopted in SR-Phlx-2025-17. See Securities Exchange Act Release No.
102862 (April 15, 2025), 90 FR 16731 (April 21, 2025) (SR-Phlx-2025-
17) (Notice of Filing and Immediate Effectiveness of Proposed Rule
Change to Amend Phlx's Complex Order Functionality). SR-Phlx-2025-17
proposed the same operative date as this proposal as they are both
part of the same technology migration.
\27\ See proposed Phlx Options 8, Section 30(g)(1). See Phlx
Options 3 Section 12(b)(1) as proposed in SR-Phlx-2025-35. See also
Securities Exchange Act Release No. 103667 (August 8, 2025), 90 FR
39042 (August 13, 2025) (SR-Phlx-2025-35) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Amend PIXL and
Adopt New Auctions). SR-Phlx-2025-35 proposed the same operative
date as this proposal as they are both part of the same technology
migration.
\28\ See supra note 26. In particular, NES has in place policies
and procedures designed to prevent the misuse of material non-public
information related to stock-tied executions. Of note, NES only
receives information about the stock or ETF portion of the order
from the Exchange. Today, NES is responsible for the proper
execution, trade reporting, and submission to clearing of the
underlying stock or ETF component of a Complex Order on Phlx.
\29\ NES is responsible for compliance with FINRA rules
generally and is subject to examination by FINRA. Specifically, NES
is subject to FINRA Rule 3110, which generally requires that the
policies and procedures and supervisory systems of a broker-dealer
be reasonably designed to achieve compliance with applicable
securities laws and regulations and with applicable FINRA rules,
including those relating to the misuse of material non-public
information. To this end, today, NES has in place policies related
to confidentiality and the potential for informational advantages
relating to its affiliates, intended to protect against the misuse
of material nonpublic information. Phlx establishes and maintains
procedures and internal controls reasonably designed to adequately
restrict the flow of confidential and proprietary information
between the Exchange and NES.
\30\ Once the orders are communicated to the broker-dealer for
execution, the broker-dealer has complete responsibility for
determining whether the orders may be executed in accordance with
all of the rules applicable to execution of equity orders.
\31\ Specifically, the trades will be reported to the FINRA/
Nasdaq TRF which is a facility of FINRA that is operated by Nasdaq,
Inc. and utilizes Automated Confirmation Transaction (``ACT'')
Service technology.
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Pursuant to proposed Options 8, Section 30(g)(2), where one
component of a Complex Customer Cross Order is the underlying security,
the Exchange shall electronically communicate the underlying security
component of a Complex Customer Cross Order to NES, its designated
broker-dealer, for immediate execution. Pursuant to proposed Options 8,
Section 30(g)(2), such execution and reporting will not occur on the
Exchange and will be handled by NES pursuant to applicable
[[Page 42492]]
rules regarding equity trading. Pursuant to proposed Options 8, Section
30(g)(2), the execution price must be within a certain price from the
current market, as determined by the Exchange. Finally, pursuant to
proposed Options 8, Section 30(g)(2), if the stock price is not within
these parameters, the Complex Customer Cross Order is not
executable.\32\ These requirements are identical to the requirements in
Phlx Options 3, Section 12(b)(2).\33\
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\32\ See proposed Options 8, Section 30(g)(2).
\33\ Phlx Options 3, Section 12(b)(2) was adopted in SR-Phlx-
2025-35. See Securities Exchange Act Release No. 103667 (August 8,
2025), 90 FR 39042 (August 13, 2025) (SR-Phlx-2025-35) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
PIXL and Adopt New Auctions).
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Finally, pursuant to proposed Options 8, Section 30(g)(3), when the
short sale price test in Rule 201 of Regulation SHO is triggered for a
covered security, NES will not execute a short sale order in the
underlying covered security component of a Complex Customer Cross Order
if the price is equal to or below the current national best bid.
However, NES will execute a short sale order in the underlying covered
security component of a Complex Customer Cross Order if such order is
marked ``short exempt,'' regardless of whether it is at a price that is
equal to or below the current national best bid pursuant to proposed
Options 8, Section 30(g)(3). If NES cannot execute the underlying
covered security component of a Complex Customer Cross Order in
accordance with Rule 201 of Regulation SHO, the Exchange will cancel
back the Complex Customer Cross Order to the entering Floor Broker
pursuant to proposed Options 8, Section 30(g)(3) Proposed Options 8,
Section 30(g)(2) notes that for purposes of this paragraph, the term
``covered security'' shall have the same meaning as in Rule 201(a)(1)
of Regulation SHO. These requirements are identical to requirements in
Phlx Options 3, Section 12(b)(3).\34\ The manner in which Floor Brokers
would be permitted to trade Complex Customer Cross Orders is identical
to the manner in which Complex Customer Cross Orders are currently
permitted to trade electronically pursuant to Option 3, Section 12(b).
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\34\ Phlx Options 3, Section 12(b)(3) was adopted in SR-Phlx-
2025-35. See Securities Exchange Act Release No. 103667 (August 8,
2025), 90 FR 39042 (August 13, 2025) (SR-Phlx-2025-35) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
PIXL and Adopt New Auctions).
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Remote FBMS
Today, the Exchange permits Floor Brokers to utilize the Options
Floor Based Management System (``FBMS''),\35\ remotely,\36\ to enter
certain orders that do not require exposure in open outcry. Today, the
term ``Remote FBMS Transaction'' is described in Options 8, Section
2(a)(10) as a transaction effected by a Floor Broker, while not
physically present on the Trading Floor, by submitting limit, market or
stop orders pursuant to Options 8, Section 28(g) and Floor Qualified
Contingent Cross Orders pursuant to Options 8, Section 30(e) to the
electronic order book, through FBMS. The Exchange proposes to amend
Options 8, Section 2(a)(10) to permit Customer Cross Orders and Complex
Customer Cross Orders to be entered remotely while the Floor Broker is
not physically present on the trading floor. Like Qualified Contingent
Cross Orders, Customer Cross Orders and Complex Customer Cross Orders
are paired orders that do not require exposure in open outcry. Floor
Brokers may also enter Customer Cross Orders and Complex Customer Cross
Orders while on the trading floor.
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\35\ FBMS, an order management system, is the gateway for the
electronic execution of equity, equity index and U.S. dollar-settled
foreign currency option orders represented by Floor Brokers on the
Exchange's Options Floor. Floor Brokers contemporaneously upon
receipt of an order and prior to the representation of such an order
in the trading crowd, record all options orders represented by such
Floor Broker to FBMS, which creates an electronic audit trail. The
execution of orders to Phlx's electronic trading system also occurs
via FBMS. The FBMS application is available on hand-held tablets and
stationary desktops.
\36\ Utilizing FBMS while not physically present on the Trading
Floor would be considered remote access.
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As is the case today, in order to conduct Remote FBMS Transactions,
unless exempt from such requirements in accordance with Supplementary
Material .01 to Options 10, Section 5 or Phlx General 4, Rule 1230,
Floor Brokers are subject to the following regulatory requirements: (1)
compliance with branch office requirements as described in
Supplementary Material .01 to Options 10, Section 5, as well as
supervision of such branch office as described in Phlx General 9,
Section 20; and (2) compliance with applicable registration
requirements described in Phlx General 4. These regulatory requirements
would apply to Customer Cross Orders and Complex Customer Cross Orders
that are entered remotely. Except as noted, all uses of FBMS involving
open outcry must be conducted while physically present on the Trading
Floor.\37\
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\37\ See Options 8, Section 2(a)(10).
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The Exchange's proposal would permit Phlx's Floor Broker to execute
Customer Cross Orders and Complex Customer Cross Orders pursuant to
proposed Options 8, Section 30(f) and (g) utilizing the same order
entry requirements as Phlx members and member organizations that
transact business electronically pursuant to Options 3, Section 12(a)
and (b).\38\ The requirements to enter Customer Cross Orders and
Complex Customer Cross Orders are identical for Floor Brokers and
electronic Phlx members and member organizations except that Floor
Brokers would execute Customer Cross Orders and Complex Customer Cross
Orders through FBMS while electronically, Phlx members and member
organizations would execute Cross Orders and Complex Customer Cross
Orders through an order entry protocol.
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\38\ Pursuant to proposed Options 8, Section 30(f) Customer
Cross Orders are automatically executed upon entry provided that the
execution is at or between the best bid and offer on the Exchange
and is not at the same price as a Priority Customer Order on the
Exchange's limit order book and will not trade through the NBBO.
Also, pursuant to Options 3, Section 30(g) Complex Customer Cross
Orders will automatically executed upon entry so long as: the price
of the transaction is at or within the best bid and offer for the
same complex strategy on the Complex Order Book; there are no Public
Customer Complex Orders for the same strategy at the same price on
the Complex Order Book; and the options legs can be executed at
prices that comply with the provisions of Options 3, Section
14(c)(2).
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As proposed, Options 8, Section 30(g) provides that only Complex
Customer Orders with a conforming ratio would be permitted to trade
pursuant to proposed Options 8, Section 30(g) whereas, today, two
Public Customer Orders in open outcry pursuant to Options 8, Section
30(a) may be entered in either conforming or non-conforming ratios. The
Exchange notes that Floor Brokers may continue to cross two Public
Customer Orders in open outcry pursuant to Options 8, Section 30(a).
This would be necessary if a Floor Broker desired to cross two Public
Customer Orders with non-conforming ratios.\39\
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\39\ Phlx's trading floor permits a spread order to consist of
different numbers of contracts so long as the number of contracts
differ by a permissible ratio (a ``Ratio Spread''). Similarly, the
legs to a straddle or combination order may consist of different
numbers of puts and calls so long as the number of contracts differ
by a permissible ratio. A permissible ratio is any ratio that is
equal to or greater than one-to-three (.333) and less than or equal
to three-to-one (3.00). For example, a one-to-two (.5) ratio, a two-
to-three (.667) ratio, or a two-to-one (2.0) ratio is permissible,
whereas a one-to-four (.25) ratio or a four-to-one (4.0) ratio is
not. See Options 8, Section 24(h).
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FLEX Position Limits
The Exchange proposes to amend Options 8, Section 34, FLEX Index,
Equity, and Currency Options. Specifically, the Exchange proposes to
amend paragraph (i)(2) of Options 8,
[[Page 42493]]
Section 34 related to FLEX Index Options position limits. Today,
paragraph (i)(2) provides,\40\
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\40\ Options 8, Section 34 was previously amended by Securities
Exchange Act Release Nos. 97658 (June 7, 2023), 88 FR 38562 (June
13, 2023) (Phlx-2023-22); 100321 (June 12, 2024), 89 FR 51580 (June
18, 2024) (SR-Phlx-2024-24); and 102977 (May 2, 2025), 90 FR 19546
(May 8, 2025) (SR-Phlx-2025-20).
FLEX Index Options shall be subject to a separate position limit
of 200,000 contracts on the same side of the market respecting
market index options; 36,000, 48,000, or 60,000 contracts respecting
industry index options, depending on the position limit tier
determined pursuant to Options 4A, Section 6(b)(i). FLEX Index
Options shall otherwise be subject to the same position limits
governing index options as provided for within Options 4A, Section
6. FLEX Equity Options shall not be subject to a separate FLEX
position limit. Except as provided in subsection (3) of this section
(i), positions in FLEX Equity Options shall not be taken into
account when calculating position limits for non-FLEX Equity
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Options, or FLEX or non-FLEX Index Options.
At this time, the Exchange proposes to instead provide,
FLEX Index Options shall be subject to a separate position limit
for broad-based FLEX Index Options, in the aggregate, of 200,000
contracts on the same side of the market, except that there shall be
no position limits for FLEX NDX or XND. FLEX Index Options shall
otherwise be subject to the same position limits governing index
options as provided for within Options 4A, Section 6. FLEX Index
Options shall otherwise be subject to the same position limits
governing index options as provided for within Options 4A, Section
6. FLEX Equity Options shall not be subject to a separate FLEX
position limit. Except as provided in subsection (3) of this section
(i), positions in FLEX Equity Options shall not be taken into
account when calculating position limits for non-FLEX Equity
Options, or FLEX or non-FLEX Index Options.
The Exchange's addition of the words, ``for broad-based FLEX Index
Options, in the aggregate'' align with rule text at Cboe Exchange, Inc.
(``Cboe'') Rule 8.35(a)(2).\41\ Also, noting that options on NDX and
XND have no position limits aligns with Phlx Options 4A, Section
6(a)(i).\42\ The Exchange is removing rule text that states, ``. . .
respecting market index options; 36,000, 48,000, or 60,000 contracts
respecting industry index options, depending on the position limit tier
determined pursuant to Options 4A, Section 6(b)(i).'' The Exchange
notes that FLEX Index Option position limits in Options 4A, Section
6(b)(i) provides for varying contract limits of 18,000, 24,000 and
31,500 for option contracts on a narrow-based (industry) index.
Pursuant to Options 4A, Section 6(b)(i)-(iii) the actual position limit
is determined at the commencement of trading of such options on the
Exchange and thereafter review the determination semiannually on
January 1 and July 1 and subject to the to the procedures specified
Options 4A, Section 6(b)(iii) as well as the position limits in Options
4A, Section 6(b)(i).
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\41\ Cboe's position limits for a broad-based FLEX Index Option
class shall not exceed in the aggregate 200,000 contracts on the
same side of the market. See Cboe Rule 8.35(a)(2).
\42\ ISE Options 4A, Section 6(a)(i) provides that respecting
the Full Value Nasdaq 100 Options, the Reduced Value Nasdaq 100
Options, the Nasdaq 100-Micro Index Options, and the Nasdaq-100 ESG
Index Options there shall be no position limits. Of note, Cboe
currently trades both NDX and XND FLEX options and has similar
language at Cboe Rule 8.35(b) with respect to the position limits
for NDX and XND FLEX options. Further, Phlx Options 4A, Section 6(c)
provides that each member or member organization that maintains a
position on the same side of the market in excess of 100,000
contracts for its own account or for the account of a customer in
excess of 100,000 contracts for its own account or for the account
of a customer in Full Value Nasdaq-100[supreg] Options, NDX; or in
excess of 100,000 contracts for its own account for the account of a
customer in Nasdaq-100 ESG Index Options, must file a report with
the Exchange that includes, but is not limited to, data related to
the option positions, whether such positions are hedged and if
applicable, a description of the hedge and information concerning
collateral used to carry the positions. Market Makers are exempt
from this reporting requirement. For positions exceeding the
position limit in Supplementary Material .01(a) of Options 4A,
Section 6 contains the requirements for qualifying for the Index
Hedge Exemption under this Rule. Cboe has similar reporting
requirements with respect to NFX and XND FLEX at Cboe Rule 8.35(b).
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The Exchange believes that the proposed amendments will align
Phlx's FLEX Index Options on the trading Floor with Cboe's Rules and
Phlx's Index Options position limits at Options 4A.
Implementation
The Exchange will implement this rule change on or before December
20, 2025. Phlx would commence its implementation with a limited symbol
migration and continue to migrate symbols over several weeks. The
Exchange will issue an Options Trader Alert to members to provide
notification of the symbols that will migrate and the relevant
dates.\43\
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\43\ See <a href="https://www.nasdaqtrader.com/MicroNews.aspx?id=OTA2024-17">https://www.nasdaqtrader.com/MicroNews.aspx?id=OTA2024-17</a>.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\44\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\45\ 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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\44\ 15 U.S.C. 78f(b).
\45\ 15 U.S.C. 78f(b)(5).
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Options Opening Process
The Exchange's proposal to amend its Opening Process at Options 3,
Section 8(k)(C)(5) to remove the following language, ``unless the
member that submitted the original order has instructed the Exchange in
writing to reenter the remaining size, in which case the remaining size
will be automatically submitted as a new order'' is consistent with the
Act. The Exchange's proposal to no longer accept an instruction from a
member to reenter the remaining size is consistent with the Act because
the member could elect to re-enter the order themselves. The amendment
will align Phlx's System behavior to ISE at Options 3, Section 8(j)(5)
in the event of a Forced Opening.
Trading Halts
Amending Options 3, Section 9(f) to note that the Exchange will
process modifications during a trading halt is consistent with the Act
as the Exchange's behavior will allow Phlx members and member
organizations to modify orders during a trading halt identical to ISE
Options 3, Section 9(a)(2). With this proposal, Phlx's System behavior
will align with ISE in the event of a trading halt.
Electronic Execution Priority and Processing in the System
The Exchange's proposal to amend a citation in Options 3, Section
10(a)(1)(B) is non-substantive.
Complex Orders
The Exchange's proposal to amend Options 3, Section 14(d)(ii) to
include the reference to the Public Customer allocation that was
inadvertently excluded is consistent with the Act as Public Customers
would receive priority allocation on both the single-leg and Complex
Order Book. Options 3, Section 14(d) addresses the Public Customer
priority on the single-leg book in the current text, ``. . .executable
Complex Options Orders will execute against Public Customer interest on
the single leg book at the same price before executing against the
Complex Order Book. Thus, Public Customer Orders on the single leg
order book shall retain priority and will execute prior to any other
Complex Order or non-Public Customer single leg interest at the same
price.'' The Exchange also proposes to offer Public Customer priority
on the Complex Order Book as described in
[[Page 42494]]
Options 3, Section 10(a)(1)(A).\46\ The Exchange notes that the current
citation is to the Market Maker Priority and all other market
participant allocations. The Exchange's proposal to remove a stray
``a'' from Options 3, Section 14(c)(2) is a non-substantive amendment.
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\46\ SR-Phlx-2024-71 amended Options 3, Section 10. See
Securities Exchange Act Release No. 101989 (December 30, 2024), 89
FR 106888 (December 30, 2024) (SR-Phlx-2024-71). SR-Phlx-2024-71 is
effective but not yet operative. SR-Phlx-2024-71 would be operative
at the same time as this rule change as they are both part of the
same technology migration.
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Routing
The Exchange's proposal to amend its routing rule to remove the
word ``internal'' before ``PBBO'' in multiple places is consistent with
the Act because Phlx recently amended \47\ its Legging Order rules so
that Legging Orders will be generated and executed in the minimum
increment for that options series pursuant to Options 3, Section 3. As
a result of the amendment in SR-Phlx-2025-17, the minimum increment
rule in Options 3, Section 3 would be applicable to Legging Orders.
With this amended functionality the Legging Order would no longer
display at a price that is rounded to the nearest minimum increment,
therefore the internal BBO would be equal to the ABBO or the ABBO would
be better than the internal PBBO on the same side of the market
indicating that there was a locked or crossed market present. As a
result of this amendment in SR-Phlx-2025-17 to the functionality, the
Exchange proposes to remove the reference to ``internal'' because it is
no longer is necessary with the System change to Legging Order
processing where orders will generate and display at minimum
increments.\48\ Similar to ISE Section 4(a)(iii)(B)(4), (5) and (7) and
Section 4(a)(iii)(C)(5) the Exchange proposes to remove the word
``internal'' from Phlx Options 5, Section 4(a)(iii)(B)(4), (5) and (7)
and Section 4(a)(iii)(C)(5). The remainder of the proposed changes are
non-substantive.
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\47\ The Exchange amended Legging Orders in SR-Phlx-2025-17. See
Securities Exchange Act Release No. 102862 (April 15, 2025), 90 FR
16731 (April 21, 2025) (SR-Phlx-2025-17) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change to Amend Phlx's
Complex Order Functionality). SR-Phlx-2025-17 proposed the same
operative date as this proposal as they are both part of the same
technology migration.
\48\ More specifically, today, the internal BBO reference in the
routing rule is being utilized where the Legging Order, which is
displayed at a price that is rounded to the nearest minimum
increment for that series, is repriced pursuant to Options 3,
Section 5(d) to avoid locking or crossing.
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Customer Cross Orders
Permitting Floor Brokers to enter Customer Cross Orders and Complex
Customer Cross Orders directly into FBMS without having to expose the
order in open outcry is consistent with the Act because this proposal
would permit Floor Broker to continue to execute paired Customer Cross
Orders, while also protecting Public Customer Orders on the book at the
same price. Identical to Phlx members and member organizations that
transact electronically, Phlx Floor Brokers would be required to enter
Customer Cross Orders where the execution price is at or between the
best bid and offer on the Exchange and is not at the same price as a
Public Customer Order on the Exchange's limit order book and will not
trade through the NBBO.\49\ Additionally, identical to Phlx members and
member organizations that transact electronically, Floor Brokers
entering Complex Customer Cross Orders would execute in the same manner
as they execute electronically on Phlx, that is such orders will be
automatically executed upon entry so long as: the price of the
transaction is at or within the best bid and offer for the same complex
strategy on the Complex Order Book, there are no Public Customer
Complex Orders for the same strategy at the same price on the Complex
Order Book, and the options legs can be executed at prices that comply
with the provisions of Options 3, Section 14(c)(2).\50\ The Exchange
notes that the requirements to enter Customer Cross Orders and Complex
Customer Cross Orders are identical for Floor Brokers and electronic
Phlx members and member organizations except that Floor Brokers would
execute Customer Cross Orders and Complex Customer Cross Orders through
FBMS while Phlx members and member organizations that trade
electronically would execute Cross Orders and Complex Customer Cross
Orders through an order entry protocol.
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\49\ See proposed Options 8, Section 30(f).
\50\ See proposed Options 8, Section 30(g).
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Further, the Exchange believes it is consistent with the Act and
the protection of investors to permit Customer Cross Orders and Complex
Customer Cross Orders to be entered remotely from off the trading floor
because these orders are not required to be exposed in open outcry.
Allowing Floor Brokers to enter Customer Cross Orders and Complex
Customer Cross Orders remotely from off the floor would place them on
equal footing with Phlx members and member organizations that trade
these orders electronically. With this proposal, Floor Brokers may only
enter Complex Customer Cross Orders in conforming ratios as defined in
Options 8, Section 1(b)(13) remotely from off the floor, however Floor
Brokers would be able to continue to cross two Public Customer Orders
in open outcry pursuant to Options 8, Section 30(a). This would be
necessary if a Floor Broker desired to cross two Public Customer Orders
with non-conforming ratios because under proposed Options 8, Section
30(g) only Complex Customer Cross Orders with a conforming ratio are
accepted for electronic processing.\51\
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\51\ Phlx's trading floor permits a spread order to consist of
different numbers of contracts so long as the number of contracts
differ by a permissible ratio (a ``Ratio Spread''). Similarly, the
legs to a straddle or combination order may consist of different
numbers of puts and calls so long as the number of contracts differ
by a permissible ratio. A permissible ratio is any ratio that is
equal to or greater than one-to-three (.333) and less than or equal
to three-to-one (3.00). For example, a one-to-two (.5) ratio, a two-
to-three (.667) ratio, or a two-to-one (2.0) ratio is permissible,
whereas a one-to-four (.25) ratio or a four-to-one (4.0) ratio is
not. See Options 8, Section 24(h).
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Permitting Floor Brokers to only submit Complex Customer Cross
Orders with a stock/ETF component if such orders comply with the
Qualified Contingent Trade Exemption from Rule 611(a) of Regulation NMS
is consistent with the Act and the protection of investors. Phlx's
proposed Options 8, Section 30(g)(1) will require that Floor Brokers
submitting such orders with a stock/ETF component represent that such
orders comply with the Qualified Contingent Trade Exemption. Member
organizations of FINRA or Nasdaq would be required to have an AGU with
NES \52\ in order to trade orders containing a stock/ETF component;
firms that are not members of FINRA or Nasdaq are required to have a
QSR arrangement with NES in order to trade orders containing a stock/
ETF component.\53\ This proposal is consistent with today's treatment
of Complex Orders with a stock/ETF component and is not changing the
manner in which a Complex Order with a stock/ETF component is treated
today on Phlx.
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\52\ NES is a broker-dealer owned and operated by Nasdaq, Inc.
NES, an affiliate of the Exchange, has been approved by the
Commission to become a Member of the Exchange and perform inbound
routing on behalf of the Exchange. NES is a registered broker-dealer
and member of various exchanges and the Financial Industry
Regulatory Authority (``FINRA'').
\53\ See proposed Options 8, Section 30(g)(1).
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Section 11(a) and the rules thereunder generally prohibit members
of an exchange from effecting transactions on the exchange for their
own account, the account of an associated person, or an
[[Page 42495]]
account with respect to which it or an associated person thereof
exercises investment discretion unless an exemption applies.\54\ With
respect to the application of Customer Cross Order to Section 11(a) of
the Act and the rules thereunder, the Exchange notes that the entry and
execution of Customer Cross Orders raises no novel issues under Section
11(a) and the rules thereunder from a compliance, surveillance or
enforcement perspective. Exchange Floor Brokers are required to comply
and the Exchange surveils for compliance with Section 11(a) and the
rules thereunder when using Exchange systems to effect transactions
using existing order types, and they will be required to comply with
Section 11(a) and the rules thereunder when using the Customer Cross
Orders as amended.
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\54\ See 15 U.S.C. 78k(a). Section 11(a) contains multiple
exemptions, including exemptions for those acting in the capacity of
market makers, as odd-lot dealers, and those engaged in stabilizing
conduct; there are also rule-based exemptions such as the ``effect
vs. execute'' exception under SEC Rule 11a2-2(T) under the Act. See
17 CFR 240.11a2-2(T).
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FLEX Position Limits
The Exchange's proposal to amend paragraph (i)(2) of Options 8,
Section 34 related to FLEX Index Options position limits is consistent
with the Act because the proposed rule text would harmonize Phlx's FLEX
rules related to FLEX Index Options position limits with Phlx Options
4A, Section 6(a)(i) for standard options as well as Cboe Rule
8.35(a)(2) with respect to the broad based index options language.
NDX and XND are subject to the same rules that presently govern the
trading of index options based on the Nasdaq-100 Index, including sales
practice rules, and margin requirements, trading rules. The Exchange
represents that it has adequate surveillances in place to detect
potential manipulation, as well as reviews in place to identify
continued compliance with the Exchange's listing standards. Further,
the Exchange believes that the current financial requirements imposed
by the Exchange and by the Commission adequately address concerns
regarding potentially large, unhedged positions in equity options.
Current margin and risk-based haircut methodologies serve to limit the
size of positions maintained by any one account by increasing the
margin and/or capital that a member organization must maintain for a
large position held by itself or by its customer.\55\ In addition, Rule
15c3-1 \56\ imposes a capital charge on member organizations to the
extent of any margin deficiency resulting from the higher margin
requirement.
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\55\ See Options 6C Section 3 regarding margin requirements.
\56\ 17 CFR 240.15c3-1.
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The Exchange notes that not imposing position limits on NDX and XND
aligns with Phlx Options 4A, Section 6(a)(i).\57\ Removing rule text
related to specific index options position limits for industry index
options in favor of broader language noting that FLEX Index Options are
subject to the same position limits governing index options as provided
for within Options 4A, Section 6 is consistent with the Act. The
revised text makes clear that Phlx's position limits for Phlx FLEX
Index Options on the trading Floor are the same as standard position
limits in Options 4A, Section 6. Also, Cboe has the same FLEX Options
position limits as noted in Cboe Rule 8.35(a)(2). Finally, Phlx's
proposal does not otherwise amend the position limits other than
amending NDX and XND position limits.
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\57\ Of note, Cboe currently trades both NDX and XND FLEX
options and has similar language at Cboe Rule 8.35(b).
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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 Opening Process
The Exchange's proposal to amend its Opening Process at Options 3,
Section 8(k)(C)(5) to remove the following language, ``unless the
member that submitted the original order has instructed the Exchange in
writing to reenter the remaining size, in which case the remaining size
will be automatically submitted as a new order'' does not impose an
undue burden on intramarket competition because no member or member
organization would be permitted to have the System automatically
reenter the remaining size.
The Exchange's proposal to amend its Opening Process at Options 3,
Section 8(k)(C)(5) does not impose an undue burden on intermarket
competition because ISE at Options 3, Section 8(j)(5) has an identical
rule.
Trading Halts
The Exchange's proposal to amend Options 3, Section 9(f) to note
that the Exchange will process modifications during a trading halt does
not impose an undue burden on intramarket competition because the
Exchange will allow all Phlx members and member organizations to modify
orders during a trading halt.
The Exchange's proposal to amend Options 3, Section 9(f) to note
that the Exchange will process modifications during a trading halt does
not impose an undue burden on intermarket competition because ISE has
identical rule text at Options 3, Section 9(a)(2).
Complex Orders
The Exchange's proposal to amend Options 3, Section 14(d)(ii) to
include the reference to the Public Customer allocation that was
inadvertently excluded does not impose an undue burden on intramarket
competition because all market participants would be subject to the
Public Customer allocation in the Complex Order Book.
The Exchange's proposal to amend Options 3, Section 14(d)(ii) to
include the reference to the Public Customer allocation that was
inadvertently excluded does not impose an undue burden on intermarket
competition because Phlx allocates in the same manner today in its
single-leg order book. With this proposal, Public Customers would
receive priority allocation on both the single-leg and Complex Order
Book. Other options exchanges may also adopt the same allocation
methodology as Phlx's allocation methodology.
Routing
The Exchange's proposal to amend its routing rule at Options 5,
Section 4(a)(iii)(B)(4), (5) and (7) and Section 4(a)(iii)(C)(5) does
not impose an undue burden on intramarket competition because any FIND
Order or SRCH Order submitted by any member or member organization
would need to be marketable against the displayed book.
The Exchange's proposal to amend its routing rule at Options 5,
Section 4(a)(iii)(B)(4), (5) and (7) and Section 4(a)(iii)(C)(5) does
not impose an undue burden on intermarket competition because a FIND
Order or SRCH Order on ISE is also marketable against the displayed
book pursuant to ISE Options 5, Section 4(a)(iii)(B)(5).
Customer Cross Orders
The proposed Customer Cross Orders and Complex Customer Cross
Orders do not impose an undue burden on intramarket competition because
today Phlx members and member organizations that transact
electronically are subject to identical rules and may enter such orders
without the need to expose the orders. The ability to enter Customer
Cross Order remotely through FBMS does not impose an undue burden on
intramarket competition
[[Page 42496]]
because the functionality will be available to all Floor Brokers.
The proposed Customer Cross Orders and Complex Customer Cross
Orders do not impose an undue burden on intermarket competition because
other options exchanges have similar rules on their electronic markets.
FLEX Position Limits
The Exchange's proposal to amend Options 8, Section 34(i) to
provide that NDX and XND shall have no position limits does not impose
an undue burden on intramarket competition as no Phlx member or member
organization would be subject to FLEX position limits for those
symbols.
The Exchange's proposal to amend Options 8, Section 34(i) to
provide that NDX and XND shall have no FLEX position limits does not
impose an undue burden on intermarket competition as Cboe similarly
does not impose position limits on NDX or XND.\58\
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\58\ See Cboe Rule 8.35(a)(2).
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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 \59\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\60\
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\59\ 15 U.S.C. 78s(b)(3)(A)(iii).
\60\ 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#9ae8eff6ffb7f9f5f7f7fff4eee9dae9fff9b4fdf5ec"><span class="__cf_email__" data-cfemail="740601181159171b1919111a0007340711175a131b02">[email protected]</span></a>. Please include
file number SR-Phlx-2025-39 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-2025-39. 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 filing 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-2025-39 and should be submitted on
or before September 23, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\61\
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\61\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-16698 Filed 8-29-25; 8:45 am]
BILLING CODE 8011-01-P
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