Notice2026-07786
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Various Auction Mechanisms
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
April 22, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 77 (Wednesday, April 22, 2026)</title>
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[Federal Register Volume 91, Number 77 (Wednesday, April 22, 2026)]
[Notices]
[Pages 21522-21527]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-07786]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105264; File No. SR-Phlx-2026-22]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Various
Auction Mechanisms
April 17, 2026.
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 April 10, 2026, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II and III, below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to permit orders for the accounts of Market
Makers assigned to the options class to
[[Page 21523]]
be solicited for the initiating order \3\ submitted for execution
against an agency order into a Facilitation Mechanism, the Solicited
Order Mechanism (``SOM'') or a Price Improvement Auction (``PIXL''), as
well as a FLEX PIXL or FLEX SOM.
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\3\ The ``initiating order'' is the order comprised of principal
interest or a solicited order(s) submitted to trade against the
order the submitting member represents as agent (the ``Agency
Order'').
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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/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
The Exchange proposes to amend Supplementary Material .01 and .03
to Options 3, Section 11 (Auction Mechanisms), Options 3, Section
13(a)(7) (Price Improvement XL (``PIXL''), Options 3A, Section 12 (FLEX
Price Improvement Mechanism (``FLEX PIXL'' or ``FLEX PIXL Auction'')
and Supplementary Material .02 to Options 3A, Section 13 (FLEX
Solicited Order Mechanism (``FLEX SOM'' or ``FLEX SOM Auction'') to
permit orders by members in a Facilitation Mechanism, a SOM, a PIXL, a
FLEX PIXL or a FLEX SOM to trade against the Agency Orders \4\ for the
accounts of Market Makers \5\ assigned to the options class. Cboe
Exchange, Inc. (``Cboe'') recently received approval to amend its rules
in an identical manner.\6\ The Exchange also proposes an amendment to
Options 5, Section 4 relating to the handling of Immediate-or-Cancel
Orders.\7\
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\4\ Agency Orders are orders entered by a member that are
represented as agent.
\5\ A ``Market Maker'' means a Streaming Quote Trader or a
Remote Streaming Quote Trader who enters quotations for his own
account electronically into the System. See Options 1, Section
1(b)(29). A ``Streaming Quote Trader'' or ``SQT'' means a Market
Maker who has received permission from the Exchange to generate and
submit option quotations electronically in options to which such SQT
is assigned. An SQT may only submit such quotations while such SQT
is physically present on the trading floor of the Exchange. An SQT
may only submit quotes in classes of options in which the SQT is
assigned. See Options 1, Section 1(b)(54). A ``Remote Streaming
Quote Trader'' or ``RSQT'' means a Market Maker that is a member
affiliated with an Remote Streaming Quote Trader Organization with
no physical trading floor presence who has received permission from
the Exchange to generate and submit option quotations electronically
in options to which such RSQT has been assigned. A qualified RSQT
may function as a Remote Lead Market Maker upon Exchange approval.
An RSQT is also known as a Remote Market Maker (``RMM'') pursuant to
Options 2, Section 11. A Remote Streaming Quote Organization
(``RSQTO'') or Remote Market Maker Organization (``RMO'') are
Exchange member organizations that have qualified pursuant to
Options 2, Section 1. See Options 1, Section 1(b)(49).
\6\ See Securities Exchange Act Release No. 105054 (March 19,
2026) (SR-Cboe-2025-90)[sic]. Cboe received approval to permit
orders for the accounts of market-makers with an appointment in the
applicable class on the Exchange, in all classes, to be solicited
for the initiating order submitted for execution against an agency
order into a simple AIM, simple SAM, FLEX AIM or FLEX SAM Auction.
\7\ Immediate-or-Cancel is an order entered with a TIF of
``IOC'' that is to be executed in whole or in part upon receipt. Any
portion not so executed is to be treated as cancelled. See
Supplementary Material .02(d) to Options 3, Section 7.
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Background
PIXL
A PIXL Auction is an electronic auction intended to provide an
Agency Order with the opportunity to receive price improvement (over
the National Best Bid or Offer (``NBBO'')). There is no specific size
requirement for a PIXL Auction. Upon submitting an Agency Order into a
PIXL, the initiating member must also submit a contra-side paired
order. The initiating order guarantees that the Agency Order will
receive an execution at no worse than the auction price. Upon
commencement of an auction, market participants may submit responses to
trade against the Agency Order.\8\ At the conclusion of a PIXL, the
Agency Order will be executed in full at the best prices available,
taking into consideration all Exchange quotes, orders and PAN
responses.\9\ Phlx's PIXL is very similar to Cboe's Automated Price
Improvement Mechanism or ``AIM.'' \10\ Options 3A, Section 12 describes
a FLEX PIXL Auction. Phlx's FLEX PIXL is consistent with non-FLEX PIXL
auction behavior.\11\ Additionally, Phlx's FLEX PIXL is similar to Cboe
Rule 5.73.
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\8\ See Options 3, Section 11(b)(3) and (d)(2) and Section
13(b)(1)(F). See also Options 3A, Section 12(c)(5) and Section
13(c)(5). Responses in PIXL are called PAN responses.
\9\ If the initiating member selected the single stop price
option of the PIXL Auction (except if it is a Complex Order), PIXL
executions will occur at prices that improve the stop price, and
then at the stop price with up to 40% or such lower percentage
requested by the initiating member. See Options 3, Section
13(b)(5)(B)(i). If the initiating member selected the auto-match
option of the PIXL Auction, the Initiating member shall be allocated
an equal number of contracts as the aggregate size of all other
quotes, orders and PAN responses at each price point until a price
point is reached where the balance of the order can be fully
executed, except that the initiating member shall be entitled to
receive up to 40% if there are multiple competing quotes, orders or
PAN responses or such lower percentage requested by the Initiating
member or 50% if there is only one competing quote, order or PAN
response provided the initiating member had not designated a
percentage designation of ``Surrender'' when initiating the Auction
of the initial size of the PIXL Order at the final price point. See
Options 3, Section 13(b)(5)(B)(ii). If the Initiating member
selected the ``stop and NWT'' option of the PIXL Auction, then
contracts are allocated first to quotes, orders and PAN responses at
prices better than the NWT price (if any), beginning with the best
price, then to quotes, orders and PAN responses at prices at the
Initiating member's NWT price and better than the Initiating
member's stop price, beginning with the NWT price. The Initiating
member shall be allocated an equal number of contracts as the
aggregate size of all other quotes, orders and PAN responses at each
price point, except that the Initiating member shall be entitled to
receive up to 40% if there are multiple competing quotes, orders or
PAN responses or 50% if there is only one competing quote, order or
PAN response of the initial size of the PIXL Order at the final
price point including situations where the final price is the stop
price after Public Customer interest has been satisfied but before
remaining interest. In the case of an Initiating Order with a NWT
price at the market, the Initiating member shall be allocated an
equal number of contracts as the aggregate size of all other quotes,
orders and PAN responses at all price points, except that the
Initiating member shall be entitled to receive up to 40% if there
are multiple competing quotes, orders or PAN responses or 50% if
there is only one competing quote, order or PAN response of the
initial size of the PIXL Order at the final price point including
situations where the final price is the stop price after Public
Customer interest has been satisfied but before remaining interest.
See Options 3, Section 13(b)(5)(B)(iii). Scenarios for Complex
Orders are noted at Options 3, Section 13(b)(5)(B)(iv)-(vii).
\10\ An AIM Auction is an electronic auction intended to provide
an Agency Order with the opportunity to receive price improvement
(over the National Best Bid or Offer (``NBBO'')). Upon submitting an
Agency Order into an AIM Auction, the initiating Trading Permit
Holder (``Initiating TPH'') must also submit a contra-side second
order (``Initiating Order'') for the same size as the Agency Order.
The Initiating Order guarantees that the Agency Order will receive
an execution at no worse than the auction price. Upon commencement
of an auction, market participants may submit responses to trade
against the Agency Order. See Cboe Rule 5.37(c)(5). At the
conclusion of an AIM Auction, depending on the contra-side interest
(including auction responses) available, the Initiating Order may be
allocated a certain percentage (or more) of the Agency Order. See
Cboe Rule 5.37(e).
\11\ See Securities Exchange Act Release No. 103759 (August 21,
2025), 90 FR 41636 (August 26, 2025) (SR-Phlx-2025-38) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt
Electronic FLEX Options Rules). Footnote 138 notes that the
Exchange's proposal will be consistent with current non-FLEX auction
behavior, including current PIXL behavior.
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[[Page 21524]]
SOM
Options 3, Section 11(d) and Options 3A, Section 13 contain the
requirements applicable to the execution of Agency Orders using SOM. A
SOM Auction is an electronic auction intended to provide a larger-sized
(orders of 500 or more contracts) Agency Order with the opportunity to
receive price improvement over the NBBO. Options 3, Section 13 and
Options 3A, Section 12 contain the requirements applicable to the
execution of orders the member represents as agent using PIXL. A PIXL
Auction is an electronic auction intended to provide an Agency Order
with the opportunity to receive price improvement (over the National
Best Bid or Offer (``NBBO'')). Upon submitting an Agency Order into a
SOM, the initiating member must also submit a contra-side paired order.
The initiating order guarantees that the Agency Order will receive an
execution at no worse than the auction price. Upon commencement of an
auction, market participants may submit responses to trade against the
Agency Order.\12\ At the conclusion of a SOM, execution will depend on
whether there is sufficient size to execute the entire Agency Order at
an improved price (or prices) \13\ as the SOM is designated as all-or-
none.\14\ Phlx's SOM is very similar to Cboe's Solicited Auction
Mechanism or ``SAM.'' \15\ Options 3A, Section 13 describes a FLEX SOM
Auction. Phlx's FLEX SOM is consistent with non-FLEX SOM auction
behavior.\16\ Additionally, Phlx's FLEX SOM is similar to Cboe Rule
5.74.
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\12\ See Options 3, Section 11(b)(3) and (d)(2) and Section
13(b)(1)(F). See also Options 3A, Section 12(c)(5) and Section
13(c)(5). Responses in PIXL are called PAN responses.
\13\ If at the time of execution there is insufficient size to
execute the entire Agency Order at an improved price (or prices),
the Agency Order will be executed against the solicited order at the
proposed execution price so long as, at the time of execution: (i)
the execution price is equal to or better than the best bid or offer
on the Exchange, and (ii) there are no Public Customer Orders or
Public Customer Responses on the Exchange that are priced equal to
the proposed execution price. If there are Public Customer Orders or
Public Customer Responses on the Exchange on the opposite side of
the Agency Order at the proposed execution price and there is
sufficient size to execute the entire size of the Agency Order, the
Agency Order will be executed against the bid or offer, and the
solicited order will be cancelled. See Options 3, Section
11(d)(3)(A). If at the time of execution there is sufficient size to
execute the entire Agency Order at an improved price (or prices),
the Agency Order will be executed at the improved price(s), provided
the execution price is equal to or better than the best bid or offer
on the Exchange, and the solicited order will be cancelled. See
Options 3, Section 11(d)(3)(B). In each case the aggregate size of
all orders, quotes and Responses at each price will be used to
determine whether the entire agency order can be executed at an
improved price (or prices).
\14\ See Options 3, Section 11(d).
\15\ A SAM Auction is an electronic auction intended to provide
a larger-sized Agency Order with the opportunity to receive price
improvement over the NBBO. Upon submitting an Agency Order into a
SAM Auction, the initiating Trading Permit Holder (``Initiating
TPH'') must also submit a contra-side second order (``Initiating
Order'') for the same size as the Agency Order. The Initiating Order
guarantees that the Agency Order will receive an execution at no
worse than the auction price. Upon commencement of an auction,
market participants may submit responses to trade against the Agency
Order. See Cboe Rule 5.39(c)(5). At the conclusion of a SAM Auction,
depending on the contra-side interest (including auction responses)
available, the Initiating Order may be allocated the entire Agency
Order or none of the Agency Order. See Cboe Rule 5.39(e).
\16\ See Securities Exchange Act Release No. 103759 (August 21,
2025), 90 FR 41636 (August 26, 2025) (SR-Phlx-2025-38) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt
Electronic FLEX Options Rules). Footnote 138 notes that the
Exchange's proposal will be consistent with current non-FLEX auction
behavior, including current SOM behavior.
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Facilitation Mechanism
Options 3, Section 11(b) describes a Facilitation Mechanism which
is an electronic auction intended to provide a larger-sized Agency
Order with the opportunity to receive price improvement over the NBBO.
Block-sized orders (fifty (50) contracts or more pursuant to Options 3,
Section 11(a)) may be entered into a Facilitation Mechanism by a member
to facilitate a customer order it represents as agent. Members must be
willing to execute the entire size of orders entered into the
Facilitation Mechanism pursuant to Options 3, Section 11(b). Under this
mechanism, a member submits a Facilitation Order along with a matching
contra-side order, and the System initiates an auction during which
other participants may submit competing responses. At the conclusion of
the auction, the facilitating member is entitled to a guaranteed
participation right at the final execution price, provided the member's
price matches or improves upon the best competing response. Pursuant to
Options 3, Section 11(b)(4)(B), the facilitating member may be
allocated up to forty percent (40%) (or such lower percentage requested
by the member) of the original size of the facilitation order, but only
after better-priced Responses, orders and quotes, as well as Public
Customer Orders and Public Customer Responses at the facilitation
price, are executed in full at such price point.
The Exchange notes that Cboe does not have a Facilitation
Mechanism. The Phlx Facilitation Mechanism is similar to Cboe's SAM.
The key differences are:
[ssquf] the Phlx Facilitation Mechanism requires a minimum of 50
contracts pursuant to Options 3, Section 11(b) while a Cboe SAM
requires a minimum of 500 contracts pursuant to Cboe Rule 5.39(a)(3);
[ssquf] Cboe's SAM has an all-or-none allocation at Cboe Rule
5.39(e) while the Phlx Facilitation Mechanism must be willing to
execute the entire size at Options 3, Section 11(b); and
[ssquf] Cboe Rule 5.39 requires that a Cboe Trading Permit Holder
submit for execution an order it represents as agent (``Agency Order'')
against a solicited order(s) (which cannot have a Capacity F for the
same EFID as the Agency Order into a SAM pursuant to Cboe Rule 5.39
wherein the Agency Order and Solicited Order cannot both be for the
accounts of Priority Customers whereas the Phlx Facilitation Mechanism
does not have similar limitations.
These aforementioned differences do not result in a different
analysis as to the impact of permitting orders by members in a
Facilitation Mechanism to trade against the Agency Orders for the
accounts of Market Makers assigned to the options class. The Exchange's
analysis below applies to the Facilitation Mechanism as it applies to a
SOM, PIXL or FLEX SOM or FLEX PIXL.
Proposal
Currently, Supplementary Material .01 and .03 to Options 3, Section
11, Options 3, Section 13(a)(7), Options 3A, Section 12, and
Supplementary Material .02 to Options 3A, Section 13 prohibit orders by
members in a Facilitation Auction, SOM, PIXL, FLEX PIXL or FLEX SOM
(collectively ``Paired Auctions''), respectively, to trade against the
Agency Orders for the accounts of Market Makers assigned to the options
class. The Exchange notes Phlx Market Makers may not be solicited as
the contra-side for complex Facilitation Auctions, SOMs and PIXLs. Cboe
does not similarly limit the contra-side for their complex AIM, complex
SAM, complex FLEX AIM or complex FLEX SAM auctions.\17\ The Exchange's
proposal would therefore apply to both simple and complex orders.
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\17\ See supra note 6.
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While market participants other than assigned Market Makers may
contribute liquidity to these Paired Auctions as either a contra-side
order or responses, assigned Market Makers, who are the primary source
of liquidity on the Exchange in their assigned options, are limited in
the manner in which they may provide liquidity to these Paired
Auctions. Given that contra-side orders that comprise initiating orders
may be allocated a percentage of the Agency
[[Page 21525]]
Order at the conclusion of the auctions, the limited ability of
assigned Market Makers to participate in a Paired Auction may reduce
the execution opportunities for these liquidity providers, which
execution opportunities are available to other market participants who
may be solicited or submit responses.
The Exchange believes that eliminating the prohibition against
assigned Market Makers acting as the contra-side in Paired Auctions
would enhance price improvement opportunities in the Paired Auctions.
This is particularly true for retail and smaller Public Customer orders
in a PIXL. Allowing assigned Market Makers registered with the Exchange
to be facilitated or solicited as contra-side may result in exposure of
more small Public Customer orders to potential price improvement via
auction processes in a PIXL. The Exchange further notes that Options 3,
Section 22(d) (Limitations on Order Entry) provides that, prior to or
after submitting an order to Phlx, a member cannot inform another
member or any other third party of any of the terms of the order for
purposes of violating this Rule. This protection will remain in place
under the proposed rule change to address any potential information
leakage concerns in the Paired Auctions as Options 3, Section 22
applies to the Paired Auctions.
The Exchange believes that the restriction has become operationally
outdated in current market structure. It is common practice that Agency
Orders already involve the same Market Maker firm acting as both the
contra-side (in an away Market Maker capacity) and auction respondent
(as an assigned Market Maker registered on the Exchange). Eliminating
this restriction would reduce an arbitrary and unnecessary burden and
allow Market Makers to structure more efficient auction processes,
which may ultimately promote greater competition among Market Makers
and provide market participants with enhanced opportunities for price
improvement.
The Exchange is proposing to amend Supplementary Material .01 and
.03 to Options 3, Section 11, Options 3, Section 13(a)(7), Options 3A,
Section 12, and Supplementary Material .02 to Options 3A, Section 13 to
permit orders for the accounts of Market Makers in an assigned options
class to be solicited for the initiating order submitted for execution
against an Agency Order in all options. The Exchange believes providing
assigned Market Makers with an additional way to participate in Paired
Auctions will expand available liquidity for these Paired Auctions,
which may increase execution and price improvement opportunities,
particularly for Public Customer orders in a PIXL. The Exchange notes
that no similar restriction applies to crossing transactions in open
outcry trading.\18\ Brokers seeking liquidity to execute against
customer orders on the trading floor regularly solicit assigned Floor
Market Makers in the applicable class for this liquidity, as they are
generally the primary source of liquidity in a class. Therefore, the
Exchange believes the proposed rule change will further align open
outcry and Paired Auctions and the execution and price improvement
opportunities available in both auctions by permitting the same
participants to be solicited as the contra-side in the Paired Auctions
across all options at all times.
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\18\ See Phlx Options 8 Rules.
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In addition to Cboe, the Exchange notes the electronic price
improvement auction of another options exchange currently permits
orders for the accounts of appointed market-makers to be solicited as
the contra-side for that auction.\19\
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\19\ See NYSE American, Inc. (``American'') Rule 971.1NY and
NYSE Pillar Options FIX Gateway Protocol Specification, Section 5.2,
New Cross Order. See also <a href="https://www.nyse.com/markets/american-options/cube-customer-best-execution">https://www.nyse.com/markets/american-options/cube-customer-best-execution</a>.
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Options 5, Section 4
The Exchange proposes to amend subparagraph (a) at Options 5,
Section 4, Order Routing, which currently states, ``Immediate-or-Cancel
(``IOC'') Orders will be cancelled immediately if not executed, and
will not be routed.'' The Exchange proposes to instead state that,
``Immediate-or-Cancel (``IOC'') Orders will be rejected and will not be
routed.'' While the current sentence reflects the operation of IOC
Orders as provided in Supplementary Material .02(d) to Options 3,
Section 7, within the context of routing, the sentence may be
confusing. Options 5, Section 4 explains the manner in which various
order types are handled differently for purposes of routing. An IOC
Order will not rest on the order book by its definition and cannot
route. The Exchange proposes to amend the language to be clear that IOC
Orders are not subject to routing and therefore would be rejected. This
proposed language is consistent with Supplementary Material .02(d) to
Options 3, Section 7 and makes clear the treatment of IOC Orders for
purposes of Options 5, Section 4.
Implementation
The Exchange proposes to implement these proposed changes on or
before Q3 2026. The Exchange will issue an Options Trader Alert
indicating the date the changes will be implemented.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\20\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\21\ 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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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes the proposed rule change will
promote just and equitable principles of trade and remove impediments
to and perfect the mechanism of a free and open market and a national
market system because it will provide the primary liquidity providers
on the Exchange with an additional way to participate in Paired
Auctions. Additionally, by permitting brokers to solicit primary
liquidity providers in a class for Paired Auctions, the Exchange
believes brokers will be able to more efficiently locate liquidity to
fill their customer orders, particularly during times of volatility. As
a result, the Exchange believes the proposed rule change will likely
expand available liquidity for these Paired Auctions, which may create
additional execution and price improvement opportunities for market
participants at all times, which ultimately benefits investors.
The Exchange believes the proposed rule change is consistent with
the Act because it will further align open outcry and Paired Auctions
and the execution and price improvement opportunities available in both
auctions by permitting the same participants to be solicited as the
contra-side in both types of auctions across all options. Currently,
assigned Market Makers may be solicited with respect to crossing
transactions on trading floors but may not be solicited with respect to
Paired Auctions.\22\ The Exchange believes there is no reason to
restrict a Market Maker's ability to provide liquidity into Paired
Auctions when they are able to similarly provide that liquidity in open
outcry trading. As noted above, the electronic price improvement
auction of another options exchange currently permits orders for
[[Page 21526]]
the accounts of assigned market makers to be solicited as the contra-
side orders for that auction.\23\
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\22\ Phlx's trading floor does not have a similar restriction.
See Phlx Options 8 Rules.
\23\ See supra notes 6 and 19.
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The Exchange believes the proposed rule change will promote
competition in Paired Auctions, including competition to initiate
Paired Auctions, which will remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors. The Exchange believes the
availability of this liquidity to Agency Orders will positively affect
the experience for Agency Orders and overall quality of the auctions.
Furthermore, the Exchange believes increasing the number of market
participants available to be solicited may increase competition to
provide initiating orders, which may lead to a Paired Auction being
initiated at a better price. More market participants competing to
provide initiating orders may lead to solicited parties providing more
aggressive initial prices. The Exchange believes the ability of all
market participants, including assigned Market Makers that did not
submit an initiating order, to become the contra-side to a Paired
Auction will continue to provide competition for executions against
Agency Orders.
The Exchange believes any risk that assigned Market Makers may
misuse the nonpublic information of an upcoming Paired Auction is de
minimis. Supplementary Material .03 to Options 3, Section 22 provides
that the exposure requirement applicable to principal transactions in
Options 3, Section 22(b) \24\ applies to the entry of orders with
knowledge that there is a pre-existing unexecuted agency, proprietary,
or solicited order on the Exchange. Member organizations may
demonstrate that orders were entered without knowledge by providing
evidence that effective information barriers between the persons,
business units, and/or systems entering the orders onto the Exchange
were in existence at the time the orders were entered. Such information
barriers must be fully documented and provided to the Exchange upon
request. Further, the Exchange notes that Options 3, Section 13(e)
prohibits a pattern or practice of submitting orders or quotes or the
purpose of disrupting or manipulating PIXL Auctions, and General 9,
Section 21 requires members to establish, maintain, and enforce written
policies and procedures reasonably designed to prevent the misuse of
material, nonpublic information by members and their associated
persons. Finally, Options 3, Section 22(d) (Limitations on Order Entry)
provides that, prior to or after submitting an order to Phlx, a member
cannot inform another member or any other third party of any of the
terms of the order for purposes of violating the Rule.
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\24\ Members may not execute as principal against orders on the
Limit Order book they represent as agent unless: (i) agency orders
are first exposed on the Limit Order book for at least 1 second;
(ii) the member organization has been bidding or offering on the
Exchange for at least 1 second prior to receiving an agency order
that is executable against such bid or offer or; (iii) the member
organization utilizes the Facilitation Mechanism pursuant to Options
3, Section 11(b) and (c); (iv) the member organization utilizes PIXL
pursuant to Options 3, Section 13; (v) the member organization
utilizes Qualified Contingent Cross Orders pursuant to Options 3,
Section 12(c) and (d); (vi) the member organization utilizes a
Customer Cross Order pursuant to Options 3, Sections 12(a) or (b);
or (vii) the member organization utilizes a Complex Order Exposure
pursuant to Supplementary Material .01 to Options 3, Section 14.
Member organizations may not execute as principal orders they
represent as agent within the Solicitation Mechanism pursuant to
Options 3, Section 11(d) and (e). See Options 3, Section 22(b).
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The Exchange believes the proposed rule change is not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers because it will permit orders for accounts of assigned Market
Makers to be solicited in the same manner as orders for the accounts of
all other market participants. Currently, all market participants other
than assigned Market Makers may be solicited as the contra-side and
submit responses in Paired Auctions for all options. Given the
additional costs and obligations associated with being an assigned
Market Maker, the Exchange does not believe these Market Makers should
have fewer execution opportunities with respect to volume submitted for
execution through Paired Auctions and not for electronic execution
against interest in the book. The Exchange believes the proposed rule
change will provide all Market Makers on the Exchange with the same
ability to participate in Paired Auctions in all options at all times,
which may further increase execution and price improvement
opportunities for market participants.
Cboe does not have an auction equivalent to the Facilitation
Mechanism, however the Exchange's Facilitation Mechanism is similar to
Cboe's SAM. The key differences noted in the Purpose section do not
differentiate the Facilitation Mechanism for purposes of permitting
orders by members in a Facilitation Mechanism to trade against the
Agency Orders for the accounts of Market Makers assigned to the options
class. The Exchange's aforementioned analysis applies to the
Facilitation Mechanism as it applies to a SOM, PIXL or FLEX SOM or FLEX
PIXL in the same manner as it applies to the Paired Auctions.
Options 5, Section 4
The Exchange's proposal to amend Options 5, Section 4(a) is
consistent with the Act because it will bring greater clarity to the
current rule text by clearly explaining that IOC Orders will not route.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange does not believe the proposed rule change will impose
any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because it
provides the same execution opportunities in Paired Auctions to
assigned Market Makers that are currently available to all other market
participants. Additionally, the proposed rule change will further align
open outcry and Paired Auctions and the execution and price improvement
opportunities available in both auctions by permitting the same
participants to be solicited as a contra-side in auctions across all
options.
The Exchange does not believe the proposed rule change will impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because it
relates to orders submitted into Paired Auctions on the Exchange.
Additionally, the Exchange notes that, in addition to Cboe, the rules
of at least one other options exchange permits orders for the accounts
of assigned market makers to be solicited as contra-side orders for
that exchange's electronic price improvement auction.\25\ The Exchange
believes the proposed rule change may improve price competition within
Paired Auctions, because the primary liquidity providers will be able
to increase participation in Paired Auctions.
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\25\ See supra note 26.
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Options 5, Section 4
The Exchange's proposal to amend Options 5, Section 4(a) does not
impose an undue burden on competition, rather the proposal clarifies
the current rule text.
[[Page 21527]]
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 \26\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\27\
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\26\ 15 U.S.C. 78s(b)(3)(A)(iii).
\27\ 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#0f7d7a636a226c6062626a617b7c4f7c6a6c21686079"><span class="__cf_email__" data-cfemail="b5c7c0d9d098d6dad8d8d0dbc1c6f5c6d0d69bd2dac3">[email protected]</span></a>. Please include
file number SR-Phlx-2026-22 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-2026-22. 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-2026-22 and should be submitted on or
before May 13, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2026-07786 Filed 4-21-26; 8:45 am]
BILLING CODE 8011-01-P
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