Notice2026-11683
Self-Regulatory Organizations; Nasdaq Phlx, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Permit Non-Conforming Ratios
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
June 11, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 112 (Thursday, June 11, 2026)</title>
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[Federal Register Volume 91, Number 112 (Thursday, June 11, 2026)]
[Notices]
[Pages 35586-35592]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-11683]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105625; File No. SR-Phlx-2026-37]
Self-Regulatory Organizations; Nasdaq Phlx, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Permit Non-
Conforming Ratios
June 8, 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 June 3, 2026, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II, below, which Items have
been prepared by the Exchange. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to permit Complex Orders to trade in non-
conforming and conforming ratios both on the Complex Order Book and in
various auctions.
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 permit Complex Orders to trade in non-
conforming and conforming ratios \3\ both on the Complex Order Book and
in various auctions. This proposed rule change is substantially similar
to SR-MIAX-2023-01.\4\
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\3\ The term ``conforming ratio'' is where the ratio between the
sizes of the options components of a Complex Order 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 (2.00) ratio is a conforming ratio,
whereas a one-to-four (.25) ratio or a four-to-one (4.0) ratio is
not; where one component of the Complex Order is the underlying
security, the ratio between any options component and the underlying
security component must be less than or equal to eight contracts to
100 shares of the underlying security. See Options 1, Section
1(b)(13).
\4\ See Securities Exchange Act Release No. 96752 (January 26,
2023), 88 FR 6795 (January 26, 2023) (SR-MIAX-2023-01) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Exchange Rule 518, Complex Orders).
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Background
The Exchange currently permits only a Complex Options Strategy
where the ratio between the sizes of the options components of a
Complex Order is equal to or greater than one-to-three (.333) and less
than or equal to three-to-one (3.00).\5\ Additionally, today, the
Exchange permits only a Stock-Option Strategy and Stock-Complex
Strategy with a ratio no greater than eight-to-one (8.00) where the
ratio represents the total number of units of the underlying
[[Page 35587]]
stock or convertible security in the option leg(s) to the total number
of units of the underlying stock or convertible security in the stock
leg.\6\
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\5\ See Options 3, Section 14(a)(1). A Complex Options Strategy
is the simultaneous purchase and/or sale of two or more different
options series in the same underlying security, for the same
account, in a ratio that is equal to or greater than one-to-three
(.333) and less than or equal to three-to-one (3.00) and for the
purpose of executing a particular investment strategy. Only those
Complex Options Strategies with no more than the applicable number
of legs, as determined by the Exchange on a class-by-class basis,
are eligible for processing.
\6\ See Options 3, Section 14(a)(2) and (3). A Stock-Option
Strategy is the purchase or sale of a stated number of units of an
underlying stock or a security convertible into the underlying stock
(``convertible security'') coupled with the purchase or sale of
options contract(s) on the opposite side of the market representing
either (A) the same number of units of the underlying stock or
convertible security, or (B) the number of units of the underlying
stock necessary to create a delta neutral position, but in no case
in a ratio greater than eight-to-one (8.00), where the ratio
represents the total number of units of the underlying stock or
convertible security in the option leg to the total number of units
of the underlying stock or convertible security in the stock leg. A
Stock-Complex Strategy is the purchase or sale of a stated number of
units of an underlying stock or a security convertible into the
underlying stock (``convertible security'') coupled with the
purchase or sale of a Complex Options Strategy on the opposite side
of the market representing either (A) the same number of units of
the underlying stock or convertible security, or (B) the number of
units of the underlying stock necessary to create a delta neutral
position, where the ratio represents the total number of units of
the underlying stock or convertible security in the option legs to
the total number of units of the underlying stock or convertible
security in the stock leg. Only those Stock-Complex Strategies with
no more than the applicable number of legs, as determined by the
Exchange on a class-by-class basis, are eligible for processing.
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Proposal
At this time, the Exchange proposes to adopt a definition for
``non-conforming ratio'' in Options 1, Section 1, Definitions, that is
identical to MIAX Rule 518(a)(16).\7\ Today, the Exchange defines
``conforming ratio'' at Options 1, Section 1(b)(13). Specifically, the
Exchange proposes to state at Options 1, Section 1(b)(31),
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\7\ MIAX Rule 518(a)(16) state that a ``non-conforming ratio''
is where the ratio between the sizes of the components of a complex
order comprised solely of options is greater than three-to-one
(3.00) or less than one-to-three (.333); where one component of the
complex order is the underlying security (stock or ETF) or security
convertible into the underlying stock (``convertible security''),
the ratio between the option component(s) and the underlying
security (stock or ETF) or convertible security is greater than
eight-to-one (8.00). The Exchange further defines specific types of
Complex Strategies in Options 3, Section 14(a).
The term ``non-conforming ratio'' is where the ratio between the
sizes of the components of a complex order comprised solely of
options is greater than three-to-one (3.00) or less than one-to-
three (.333); where one component of the complex order is the
underlying security (stock or ETF) or security convertible into the
underlying stock (``convertible security''), the ratio between the
option component(s) and the underlying security (stock or ETF) or
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convertible security is greater than eight-to-one (8.00).
The Exchange proposes to amend various rules to update cross-
references that were amended with the addition of the definition of
non-conforming ratio at Options 1, Section 1(b)(31). Specifically, the
Exchange proposes to amend Options 2, Section 1(a); Options 2, Section
11(f); Options 3, Section 20(a)(3); Options 4C, Section 2(b)(4);
Options 7, Section 1(c); Options 8, Section 11(a)(1); and Options 8,
Section 25(a)(1)(B).
With this proposal, the minimum increments for Complex Options
Strategies, Stock-Option Strategies and Stock-Complex Strategies with
non-conforming ratios will be identical to the minimum increments for
Complex Options Strategies, Stock-Option Strategies and Stock-Complex
Strategies with conforming ratios. Under the proposal, bids and offers
for Complex Options Strategies in non-conforming ratios may be
expressed in one cent ($0.01) increments, and the options leg of
Complex Options Strategies may be executed in one cent ($0.01)
increments, regardless of the minimum increments otherwise applicable
to the individual options legs of the order. Further, under the
proposal, bids and offers for Stock-Option Strategies and Stock-Complex
Strategies with non-conforming ratios may be expressed in any decimal
price determined by the Exchange, and the stock leg of a Stock-Option
Strategy or Stock-Complex Strategy may be executed in any decimal price
permitted in the equity market. Finally, the options leg of a Stock-
Option Strategy or Stock-Complex Strategy with a non-conforming ratio
may be executed in one cent ($0.01) increments, regardless of the
minimum increments otherwise applicable to the individual options legs
of the order.
The Exchange understands that there may be some concerns that if
the ratios of Complex Orders, where each component leg is allowed to
trade in one cent increments, are too greatly expanded, market
participants will, for example, enter Complex Orders with non-
conforming ratios designed primarily to trade orders in a class in
pennies that cannot otherwise execute as single-leg orders in that
class in pennies. The Exchange believes it is highly unlikely that
market participants will submit non-bona-fide trading strategies with
larger ratios just to trade in penny increments. Adding a single leg to
a larger order just to obtain penny pricing may further reduce
execution opportunities for such an order because it may be less likely
that sufficient contracts in the appropriate ratio would be available
and because it is unlikely that other market participants would be
willing to execute against an order that is not a bona-fide trading
strategy. Further, pursuant to General 9, Section 1(c), no member or
member organization shall engage in acts or practices inconsistent with
just and equitable principles of trade, and entering orders for non-
bona-fide trading strategies may constitute acts or practices
inconsistent with just and equitable principles of trade.
The Complex Order priority rules will continue to protect Public
Customer interest on the single-leg order book. Pursuant to Options 3,
Section 14(c)(2), Complex strategies will continue to not execute at
prices inferior to the best net price achievable from the best Exchange
bids and offers for the individual legs. At this time, the Exchange
proposes to amend Options 3, Section 14(c)(2)(i) which currently
states,
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
increment for the series as defined in Options 3, Section 3.
The proposed amendment revises Options 3, Section 14(c)(2)(i) to
indicate that complex 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 for a Complex Order with
a conforming ratio, 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.
The Exchange notes that a Complex Order with a non-conforming ratio
would be executed in accordance with Options 3, Section 14(d)(4) as
proposed herein. As discussed above, the Complex Order priority rules
will continue to protect Public Customer interest on the single-leg
order book.
The Exchange proposes to add ``with conforming ratios'' to Options
3, Section 14(c)(2)(i) to make clear that the Complex Order priority
provisions in
[[Page 35588]]
that rule will continue to apply only to Complex Orders with conforming
ratios. In addition, the Exchange proposes to amend Options 3, Section
14(c)(2)(i) to state that a Complex Order with a non-conforming ratio
will be executed in accordance with proposed Options 3, Section
14(d)(4). Options 3, Section 14(c)(2)(i) as amended will state,
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 for a
Complex Order with a conforming ratio, 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. A Complex Order with a non-
conforming ratio will be executed in accordance with (d)(4) below.
The Exchange's proposal does not extend the Complex Order priority
in Options 3, Section 14(c)(2)(i) afforded to Complex Orders with
ratios equal to or greater than one-to-three and less than or equal to
three-to-one to these larger-ratio Complex Orders. Rather, the Exchange
proposes to adopt new Options 3, Section 14(d)(4) which will state that
Complex Orders with a non-conforming ratio will not be executed at a
net price that would cause any option component of the complex strategy
to be executed: (A) ahead of a Public Customer order at the BBO on the
single-leg order book; or (B) at a price that is through the NBBO.\8\
Therefore, a Complex Order with any ratio less than one-to-three or
greater than three-to-one may be executed at a net price only if each
leg of the Complex Order betters the corresponding bid (offer) of a
Public Customer Order(s) on the single-leg order book, and is not at a
price that is through the NBBO. These requirements are consistent with
the rules of other option exchanges that process Complex Orders in the
same ratios.\9\
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\8\ MIAX 518(c)(1)(iv) notes that a complex order will not be
executed at a net price that would cause any option component of the
complex strategy to be executed at a price of zero. Cboe
5.33(f)(2)(A)(i) states that the system does not execute a complex
order at a net price that would cause any component of the complex
strategy to be executed at a price of zero. The Exchange notes that
no Simple Order or Complex Order, with a conforming ratio or a non-
conforming ratio, may execute at a price of zero, therefore, the
Exchange is not adopting this portion of the rule similar to MIAX
and Cboe since this limitation applies throughout all of the
exchange's rules.
\9\ See MIAX Rule 518(c)(1)(vi), Cboe Exchange Rule
5.33(f)(2)(A)(iv)(b), and BOX Exchange LLC (``BOX'') Rule
7240(b)(2)(iii).
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Further, the Exchange proposes to not permit the option leg or
stock leg of a Complex Order with a non-conforming ratio to trade
outside of the NBBO. The Exchange proposes to state at the end of
Options 3, Section 14(d)(4), ``The stock leg of a Stock-Option Strategy
or a Stock-Complex Strategy with a non-conforming ratio may not trade
through the NBBO.'' The Exchange would continue to permit a Complex
Order with a non-conforming ratio to trade provided the options legs
(and stock legs) are at or within the NBBO. This proposal does not
prevent Complex Orders with a conforming ratio from trading outside the
NBBO provided the trade complies with Exchange rules and, where
applicable, the Qualified Contingent Trade Exemption from Rule 611 of
Regulation NMS.\10\
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\10\ See ISE Supplementary Material .07 to Options 3, Section
14. 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). See 17 CFR 242.611(a). Trading centers must establish,
maintain, and enforce written policies and procedures that are
reasonably designed to prevent trade-throughs. 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.
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The Exchange also proposes to amend its Complex Price Improvement
XL (``PIXL'') mechanism to adopt rule text that describes new scenarios
that arise as a result of the Exchange processing Complex Orders with
non-conforming ratios, which would cause a PIXL Auction to early
terminate prior to the end of the time period designated by the
Exchange pursuant to Options 3, Section 13(b)(2). Currently, pursuant
to Options 3, Section 13(b)(2),
(2) Conclusion of Auction. The PIXL Auction shall conclude at
the earlier to occur of (A) through (F) below, with the PIXL Order
executing pursuant to paragraph (2)(A) through (D) below.
(A) The end of the Auction period;
(B) For a PIXL Auction (except if it is a Complex Order), any
time the internal PBBO crosses the PIXL Order stop price on the same
side of the market as the PIXL Order;
(C) For a Complex Order PIXL Auction, upon the receipt of a
Complex Order in the same complex strategy on either side of the
market that is marketable against the Complex Order Book or bids and
offers for the individual legs;
(i) When a marketable Complex Order on the opposite side of the
Complex PIXL Order ends the exposure period, it will participate in
the execution of the Complex PIXL Order at the price that is mid-way
between the best counter-side interest and the same side best bid or
offer on the Complex Order Book or net price from Exchange's best
bid or offer on the individual legs, whichever is better, so that
both the marketable Complex Order and the Complex PIXL Order receive
price improvement. Transactions will be rounded, when necessary, to
the $0.01 increment that favors the Complex PIXL Order.
(ii) When a marketable Complex Order on the same side of the
PIXL Complex Order ends the exposure period, the Complex PIXL Order
will trade pursuant to Options 3, Section 13(b)(8).
(D) For a Complex Order PIXL Auction, upon the receipt of a non-
marketable Complex Order in the same complex strategy on the same
side of the market as the PIXL Complex Order that would cause the
execution of the Complex PIXL Order to be at or outside of the best
bid or offer on the Complex Order Book;
(E) For a Complex Order PIXL Auction, when a resting Complex
Order in the same complex strategy on either side of the market
becomes marketable against the Complex Order Book or bids and offers
for the individual legs; or
(F) Any time there is a trading halt on the Exchange in the
affected series.
The Exchange proposes to provide additional language in light of
the addition of non-conforming ratios to note that the exposure period
will automatically terminate if upon receipt of a Public Customer
Order, eligible to rest on the single-leg order book, that would lock
or cross any component of a non-conforming ratio Complex PIXL Order.
Further, the exposure period will automatically terminate if the NBBO
for any option component of a non-conforming ratio Complex PIXL Order
updates to a price that would cause that component of the Complex PIXL
Order to be executed at a price that is through the NBBO for that
series. These provisions ensure that a Complex PIXL Order will always
receive the best price on the Exchange while simultaneously preserving
the integrity of the single-leg market by preventing a component of an
[[Page 35589]]
order with a non-conforming ratio from trading ahead of Public Customer
interest or trading through the NBBO.
The Exchange proposes to add rule text to Supplementary Material
.11 to Options 3, Section 11 to make clear that a Complex Strategy
entered into a Complex PIXL may be in a conforming ratio as defined in
Options 1, Section 1(b)(13) or a non-conforming ratio as defined in
Options 1, Section 1(b)(31) \11\ The Exchange also proposes to add rule
text to Options 3, Section 12(b) and (d) to make clear that a Complex
Customer Cross Order and a Complex Qualified Contingent Cross may be
entered into the System in a conforming ratio as defined in Options 1,
Section 1(b)(13) or a non-conforming ratio as defined in Options 1,
Section 1(b)(31).\12\
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\11\ See proposed Supplementary Material .02 to Options 3,
Section 11 and proposed Supplementary Material .11 to Options 3,
Section 13.
\12\ See proposed Options 3, Section 12(b) and (d).
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In contrast, a Complex Strategy entered into a Complex Facilitation
Mechanism or Complex Solicited Order Mechanism must be in a conforming
ratio as defined in Options 1, Section 1(b)(13). The Exchange proposes
rule text at Supplementary Material .02 to Options 3, Section 11 to
make this restriction for these Complex Order auctions clear to member
organizations. At this time, the Exchange is not permitting non-
conforming ratios in every auction. The Exchange is offering non-
conforming ratios in the limited auctions noted above. The Exchange
notes that it will evaluate the market demand from member organizations
with respect to non-conforming ratios and determine at a later date
whether to permit non-conforming ratios in additional auctions.
The Exchange proposes to amend Options 3, Section 16(b) to provide
that the Strategy Protections in Options 3, Section 16(b) \13\ would
not apply to a complex strategy with a non-conforming ratio. Options 3,
Section 16(b) includes a Vertical Spread Protection, a Calendar Spread
Protection, a Butterfly Spread Protection and a Box Spread Protection.
These strategies require a member organization to execute these
strategies in certain ratios that would not be achieved with non-
conforming ratios.\14\ Other risk protections remain available for
complex strategies with non-conforming ratios.
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\13\ Options 3, Section 16(b) includes a Vertical Spread
Protection, a Calendar Spread Protection, a Butterfly Spread
Protection and a Box Spread Protection.
\14\ A Vertical Spread and Calendar Spread Protection both
require a contract ratio with one long option and one short option
(1:1). A Butterfly Spread Protection requires one long option, two
short options and one long option (1:2:1). Finally, a Box Spread
Protection requires one long option: one short option: one long
option: one short option (1:1:1:1).
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The proposal will provide an additional venue for executing non-
conforming Complex Orders electronically. The Exchange believes this
increased efficiency would increase execution opportunities for Complex
Orders with investment strategies that do not fit within the three-to-
one ratio requirement.
Floor Rules
The Exchange proposes to add rule text to make clear a Floor
Complex Qualified Contingent Cross Order and a Floor Complex Customer
Cross Order \15\ may be entered into the System in a conforming ratio
as defined in Options 1, Section 1(a)(13) or a non-conforming ratio as
defined in Options 1, Section 1(a)(31).\16\ Today, a Floor Complex
Qualified Contingent Cross Order and a Floor Complex Customer Cross
Order entered as a Remote FBMS Transaction \17\ may only be entered in
conforming ratios. Floor Brokers have an option to utilize the Options
Floor Based Management System (``FBMS''),\18\ remotely,\19\ to enter
certain orders \20\ that do not require exposure in open outcry.
Allowing a Floor Complex Qualified Contingent Cross Order and a Floor
Complex Customer Cross Order to be entered in conforming and non-
conforming ratios similar to the way that Phlx members and member
organizations enter such orders electronically is consistent with the
Act and removes impediments to and perfect the mechanism of a free and
open market and a national market system.
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\15\ The Exchange proposes to add the word ``Floor'' before
Customer Cross Order and Complex Customer Cross Order in Options 8,
Section 2(a)(10), Section 30(f) and (g) and Section 32 (f) and (g).
The Exchange also proposes to remove the sentence that states, only
Complex Customer Cross Orders with a conforming ratio as defined in
Options 1, Section 1(b)(13) will be accepted in Options 8, Section
30(g).
\16\ See proposed Options 8, Section 30(e) and (f).
\17\ The term ``Remote FBMS Transaction'' is 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), Customer Cross Orders pursuant to
Options 8, Section 30(f), Complex Customer Cross Orders pursuant to
Options 8, Section 30(g), and Floor Qualified Contingent Cross
Orders pursuant to Options 8, Section 30(e) to the electronic order
book, through FBMS. 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. All uses of
FBMS involving open outcry must be conducted while physically
present on the Trading Floor. See Options 8, Section 2(a)(10).
\18\ 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.
\19\ Utilizing FBMS while not physically present on the Trading
Floor would be considered remote access.
\20\ Qualified Contingent Cross Orders, Customer Cross Orders
and Complex Customer Cross Orders are paired orders that do not
require exposure in open outcry and are considered Remote FBMS
Transactions pursuant to Options 8, Section 2(a)(10).
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Implementation
The Exchange proposes to implement the amendments to the Options 8
Rules on the 30th day after the date of filing or earlier, if the
waiver of the operative delay is granted.
The remainder of the amendments would be implemented on or before
December 20, 2027. The Exchange will issue an Options Trader Alert to
all members and member organizations with the exact date of
implementation.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\21\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\22\ 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. The Exchange believes the proposed changes will increase
opportunities for execution of non-conforming ratio Complex Orders by
providing another exchange to trade non-conforming Complex Orders
electronically, which will benefit all investors. The Exchange also
believes that the proposed rule change is designed to not permit unfair
discrimination among market participants, as all market participants
will be able to trade non-conforming ratio Complex Orders, and the
priority rules will apply to non-conforming ratio Complex Orders of all
market participants.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
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The Exchange currently permits only a Complex Options Strategy
where the ratio between the sizes of the options
[[Page 35590]]
components of a Complex Order is equal to or greater than one-to-three
(.333) and less than or equal to three-to-one (3.00).\23\ Additionally,
today, the Exchange permits only a Stock-Option Strategy and Stock-
Complex Strategy with a ratio no greater than eight-to-one (8.00) where
the ratio represents the total number of units of the underlying stock
or convertible security in the option leg to the total number of units
of the underlying stock or convertible security in the stock leg.\24\
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\23\ See Options 3, Section 14(a)(1). A Complex Options Strategy
is the simultaneous purchase and/or sale of two or more different
options series in the same underlying security, for the same
account, in a ratio that is equal to or greater than one-to-three
(.333) and less than or equal to three-to-one (3.00) and for the
purpose of executing a particular investment strategy. Only those
Complex Options Strategies with no more than the applicable number
of legs, as determined by the Exchange on a class-by-class basis,
are eligible for processing.
\24\ See Options 3, Section 14(a)(2) and (3). A Stock-Option
Strategy is the purchase or sale of a stated number of units of an
underlying stock or a security convertible into the underlying stock
(``convertible security'') coupled with the purchase or sale of
options contract(s) on the opposite side of the market representing
either (A) the same number of units of the underlying stock or
convertible security, or (B) the number of units of the underlying
stock necessary to create a delta neutral position, but in no case
in a ratio greater than eight-to-one (8.00), where the ratio
represents the total number of units of the underlying stock or
convertible security in the option leg to the total number of units
of the underlying stock or convertible security in the stock leg. A
Stock-Complex Strategy is the purchase or sale of a stated number of
units of an underlying stock or a security convertible into the
underlying stock (``convertible security'') coupled with the
purchase or sale of a Complex Options Strategy on the opposite side
of the market representing either (A) the same number of units of
the underlying stock or convertible security, or (B) the number of
units of the underlying stock necessary to create a delta neutral
position, where the ratio represents the total number of units of
the underlying stock or convertible security in the option legs to
the total number of units of the underlying stock or convertible
security in the stock leg. Only those Stock-Complex Strategies with
no more than the applicable number of legs, as determined by the
Exchange on a class-by-class basis, are eligible for processing.
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In particular, the Exchange believes the proposed rule change will
remove impediments to and perfect the mechanism of a free and open
market and benefit investors, because it will allow market participants
to execute Complex Strategies with option components in ratios greater
than three-to-one or less than one-to-three (``non-conforming ratios''
as proposed herein) on the Exchange. In addition, as proposed, Stock-
Option Orders with non-conforming ratios will also be permitted. The
proposed rule change will further remove impediments to and perfect the
mechanism of a free and open market and a national market system, as
other options exchanges permit the trading of Complex Orders, including
Stock-Options Orders, with any ratio.\25\
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\25\ See supra note 9.
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The proposed rule change will continue to protect Public Customer
Order interest on the single-leg order book in the same manner as it
does today, as all Complex Orders with a conforming ratio will continue
to be executed on the Exchange without change. The proposed rule change
has no impact on the priority of Complex Orders with a conforming
ratio, as Complex Orders with a conforming ratio will continue to be
required to improve the price of a leg of the Complex Order for which a
Public Customer Order is resting at the BBO in the single-leg order
book,\26\ and thus will continue to protect Public Customer Orders in
the single-leg order book. Additionally, the Exchange will not allow
any component of a Complex Order with a non-conforming strategy to
execute ahead of a Public Customer resting at the BBO in the single-leg
order book.\27\
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\26\ See Options 3, Section 14(c)(2)(i). The Exchange is
amending Options 3, Section 14(c)(2)(i) to indicate that Options 3,
Section 14(c)(2)(i) applies only to conforming ratio Complex Orders.
\27\ See Options 3, Section 14(c)(2)(i). See proposed Options 3,
Section 14(d)(4)(B). In addition, proposed Options 3, Section
14(d)(4) provides that no component of a non-conforming ratio
Complex Order will be executed at a price that is through the NBBO.
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Additionally, the Exchange believes the proposed amendment to
Options 3, Section 14(c)(2)(i) indicating that Options 3, Section
14(c)(2)(i) applies solely to conforming ratio complex strategies, will
make clear that this provision does not apply to non-conforming ratio
Complex Orders. Further, a Complex Order with a non-conforming ratio
would be executed in accordance with Options 3, Section 14(d)(4), as
proposed herein. The requirements in proposed Options 3, Section
14(c)(2)(i) and Options 3, Section 14(d)(4) are consistent with the
Complex Order priority rules of another options exchange.\28\
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\28\ See Cboe Rule 5.33(f)(2)(A)(iv).
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The Exchange's proposal to not permit the option leg or stock leg
of a Complex Order with a non-conforming ratio to trade outside of the
NBBO is consistent with the Act because the Exchange would continue to
permit a Complex Order with a non-conforming ratio to trade provided
the options legs (and stock legs) are at or within the NBBO. This
proposal does not prevent Complex Orders with a conforming ratio from
trading outside the NBBO provided the trade complies with Exchange
rules and, where applicable, the Qualified Contingent Trade Exemption
from Rule 611 of Regulation NMS.\29\
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\29\ See supra note 10.
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Additionally, the Exchange believes that including additional
scenarios that will early terminate a Complex PIXL Auction promotes
just and equitable principles of trade and removes impediments to a
free and open market by providing greater transparency concerning the
operation of Exchange functionality. These provisions ensure that a
non-conforming ratio Complex PIXL Order will always receive the best
price on the Exchange while simultaneously preserving the integrity of
the single-leg market and preventing any component leg of a non-
conforming ratio Complex Order from trading ahead of a Public Customer
Order or through the NBBO.\30\
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\30\ See Options 3, Section 13(e)(4)(iv)(E) and (F).
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The Exchange's proposal to amend Options 3, Section 16(b) to state
that the Strategy Protections in Options 3, Section 16(b) will not
apply to complex strategies with non-conforming ratios is consistent
with the Act because the Vertical Spread Protection, Calendar Spread
Protection, Butterfly Spread Protection, and Box Spread Protection each
apply to strategies that have ratios less than three-to-one (i.e., they
are strategies with a conforming ratio).\31\ Accordingly, the proposed
change to Options 3, Section 16(b) will provide clarity to the
Exchange's rules. Other risk protections remain available for complex
strategies with non-conforming ratios.
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\31\ A Vertical Spread and Calendar Spread Protection both
require a contract ratio with one long option and one short option
(1:1). A Butterfly Spread Protection requires one long option, two
short options and one long option (1:2:1). Finally, a Box Spread
Protection requires one long option: one short option: one long
option: one short option (1:1:1:1).
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The Exchange believes that its proposal 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, by
enhancing its System and providing investors with an additional venue
to trade non-conforming ratio Complex Orders electronically. The
Exchange's proposal should provide market participants with trading
opportunities more closely aligned with their investment or risk
management strategies.
Further, amending Options 8, Section 30(e) and (g) to permit Floor
Complex Qualified Contingent Cross Orders and Floor Complex Customer
Cross Orders (as proposed to be renamed) to be
[[Page 35591]]
entered in a conforming ratio as defined in Options 1, Section 1(a)(13)
or a non-conforming ratio as defined in Options 1, Section 1(a)(31)
similar to these same orders that are entered electronically is
consistent with the Act. Permitting both members and member
organizations to enter electronic and floor Complex Qualified
Contingent Cross Orders and Complex Customer Cross Orders in either a
conforming or non-conforming ratio promotes just and equitable
principles of trade and removes impediments to and perfect the
mechanism of a free and open market and a national market system by
offering members and member organizations various means to execute
their orders on Phlx.
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.
The Exchange does not believe that its proposed rule change will
impose any burden on intra-market competition as the proposed
amendments would apply equally to all member organizations of the
Exchange. Further, any member organization of the Exchange may submit a
Complex Order with a non-conforming ratio.
The Exchange does not believe that its proposed rule change will
impose any burden on inter-market competition that is not necessary or
appropriate in furtherance of the purposes of the Act, rather the
Exchange believes that its proposal will promote inter-market
competition. Other options exchanges provide for the electronic trading
of Complex Orders comprised solely of option components with ratios
that are less than one-to-three or greater than three-to-one, and allow
these orders to be priced and executed in one cent increments.\32\ In
addition, other options exchanges permit the trading of Stock-Option
Orders with non-conforming ratios.\33\ As such, 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.
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\32\ See supra note 7.
\33\ See supra note 9.
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The Exchange does not believe the proposed amendment to indicate
that the priority provision to Options 3, Section 14(c)(2)(i) applies
solely to conforming ratios to Complex Orders imposes any burden on
intra-market competition that is not necessary or appropriate in
furtherance of the purposes of the Act because Complex Orders for all
member organizations will be treated in the same manner. The Exchange
will not allow any component of a Complex Order with a non-conforming
ratio to execute ahead of a Public Customer resting at the BBO in the
single-leg order book.\34\ Further, no Member would be able to utilize
the QCT Exemption for a Stock-Options Order or a Stock-Complex Strategy
that has a non-conforming ratio.
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\34\ See Options 3, Section 14(c)(2)(i). See proposed Options 3,
Section 14(d)(4)(B). In addition, proposed Options 3, Section
14(d)(4) provides that no component of a non-conforming ratio
Complex Order will be executed at a price that is through the NBBO.
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Complex Orders submitted by member organizations with conforming
ratios will continue to be handled by the System without change. The
non-conforming ratio Complex Orders of all member organizations will be
handled uniformly by the System as described in this proposal. The
Exchange does not believe that this proposed change imposes any burden
on inter-market competition because other options exchange currently
trade non-conforming ratio Complex Orders including Stock-Option Orders
with non-conforming ratios.\35\
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\35\ See supra note 9.
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Additionally, the Exchange does not believe that its new proposed
scenarios to terminate a Complex PIXL Auction imposes any burden on
intra-market competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as the proposed changes are
designed to add additional detail to the rules to further clarify the
operation of Exchange functionality and to minimize the potential for
confusion. These provisions will apply to the Complex Orders of all
member organizations. The Exchange does not believe that this proposed
change imposes any burden on inter-market competition because other
options exchanges would be free to adopt similar rules for early
terminating their auctions.
The Exchange's proposal to not offer the Strategy Protections in
Options 3, Section 16(b) to a complex strategy with a non-conforming
ratio does not impose an undue burden on intra-market competition
because these risk protections will not be available for any member or
member organization.
The Exchange's proposal to not offer the Strategy Protections in
Options 3, Section 16(b) to a complex strategy with a non-conforming
ratio does not impose an undue burden on inter-market competition
because other options markets may similarly elect to offer or not offer
certain risk protections to certain types of options orders.
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 \36\ and Rule
19b-4(f)(6) thereunder.\37\
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\36\ 15 U.S.C. 78s(b)(3)(A)(ii).
\37\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \38\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\39\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay with respect to the
proposed changes to Options 8 that would allow members to enter non-
conforming ratio Floor Complex Qualified Contingent Cross (``QCC'')
Orders and Floor Complex Customer Cross Orders. The Exchange states
that waiver of the operative delay with respect to these orders would
provide members with various means for executing non-conforming ratio
Floor Complex QCC Orders and Floor Complex Customer Cross Orders on the
Exchange. The Commission believes that waiving the 30-day operative
delay is consistent with the protection of investors and the public
interest. Waiver of the operative delay would allow the Exchange to
immediately permit members to execute non-conforming ratio Complex QCC
Orders and Complex Customer Cross Orders on the floor as well as
electronically, thereby providing members with additional flexibility
in
[[Page 35592]]
handling these orders. Accordingly, the Commission hereby waives the
operative delay and designates the proposed rule changes to allow non-
conforming ratio Floor Complex QCC Orders and Floor Complex Customer
Cross Orders operative upon filing.
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\38\ 17 CFR 240.19b-4(f)(6).
\39\ 17 CFR 240.19b-4(f)(6)(iii).
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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.
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#7b090e171e56181416161e150f083b081e18551c140d"><span class="__cf_email__" data-cfemail="0775726b622a64686a6a626973744774626429606871">[email protected]</span></a>. Please include
file number SR-Phlx-2026-37 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-2026-37. 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-2026-37 and should be submitted on
or July 2, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-11683 Filed 6-10-26; 8:45 am]
BILLING CODE 8011-01-P
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