
[Federal Register Volume 80, Number 249 (Tuesday, December 29, 2015)]
[Notices]
[Pages 81393-81402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-32654]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76742; File No. SR-Phlx-2015-49]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Amendment Nos. 1 and 2 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 
2, To Amend and Correct Phlx Rule 1080.07

December 22, 2015.

I. Introduction

    On June 5, 2015, NASDAQ OMX PHLX LLC (``Exchange'' or ``Phlx'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend and correct several provisions of Phlx Rule 1080.07, ``Complex 
Orders on Phlx XL,'' which governs the handling of Complex Orders 
submitted to the Phlx's electronic Complex Order System (``System''). 
The proposed rule change was published for comment in the Federal 
Register on June 23, 2015.\3\ On July 30, 2015, the Commission extended 
the time period for Commission action to September 21, 2015.\4\ On 
September 17, 2015, the Commission instituted proceedings to determine 
whether to approve or disapprove the proposed rule change.\5\ The Phlx 
filed Amendment Nos. 1 and 2 to the proposal on November 4, 2015, and 
December 3, 2015, respectively.\6\ On December 15, 2015, the Commission 
extended the time period for Commission action to February 18, 2016.\7\ 
The Commission received no comments regarding the proposed rule change. 
The Commission is publishing this notice to solicit comments on 
Amendment Nos. 1 and 2 and is approving the proposed rule change, as 
amended, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 75189 (June 17, 
2015), 80 FR 35997 (``Notice'').
    \4\ See Securities Exchange Act Release No. 75570, 80 FR 46619 
(August 5, 2015).
    \5\ See Securities Exchange Act Release No. 75942, 80 FR 57406 
(September 23, 2015).
    \6\ As described more fully in Section II(H) below, Amendment 
No. 1 revises the proposal to further clarify or add detail to 
several rules, provide additional rationale for certain proposed 
changes, and specify the time when the Phlx plans to begin accepting 
all-or-none Complex Orders. Amendment No. 2 revises several rules to 
clarify the manner in which participants may participate in auctions 
and in the opening process. When the Phlx filed Amendment Nos. 1 and 
2 with the Commission, it also posted the amendments on the Phlx's 
Web site and submitted them as a comment letters to the file, which 
the Commission posted on its Web site and placed in the public 
comment file for SR-Phlx-2015-49.
    \7\ See Securities Exchange Act Release No. 76648, 80 FR 79385 
(December 21, 2015).
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II. Description of the Proposal

    The Phlx proposes to amend and correct inconsistencies in several 
provisions of Phlx Rule 1080.07, which governs the handling of Complex 
Orders submitted to the System. The System currently includes a Complex 
Order Opening Process (``COOP''); the Complex Order Live Auction 
(``COLA''), an automated auction for seeking liquidity and price 
improvement for Complex Orders; and a Complex Limit Order Book 
(``CBOOK''). In addition, the proposal revises Phlx Rule 1080.07 to 
describe the acceptance and treatment of all-or-none Complex Orders.

A. Amendments to the COOP Rules

    The Phlx proposes several changes to Phlx Rule 1080.07(d) to 
accurately describe the operation of the COOP for Complex Order 
Strategies and to provide additional details regarding the COOP.\8\ 
Currently, Phlx Rule 1080.07(d)(ii) provides that upon receipt of a 
single COLA-eligible order, the System initiates the opening process. 
The Phlx proposes to revise Phlx Rule 1080.07(d)(ii) to indicate that, 
instead, the COOP operates in a manner similar to a traditional opening 
process for single leg orders, taking into account all trading interest 
in a particular Complex Order Strategy (rather than auctioning a single 
order), to determine the price at which the maximum number of contracts 
may trade, and calculating any imbalance.\9\ The Phlx states that the 
opening process maximizes price discovery and seeks to execute as much 
interest as possible at the best possible price(s).\10\
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    \8\ A Complex Order Strategy is a particular combination of 
components of a Complex Order and their ratios to one another. See 
Phlx Rule 1080.07(a)(ii).
    \9\ See Notice, 80 FR at 35997. Phlx states that it currently 
operates the COOP as proposed. Id.
    \10\ See Notice, 80 FR at 36004.
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    Phlx Rule 1080.07(d)(ii), as amended, provides that the Phlx will 
conduct a COOP for any Complex Order Strategy for which the Phlx has 
received an order prior to the opening, unless the Complex Order 
Strategy is already open as a result of another electronic auction 
process or another electronic auction involving the same Complex Order 
Strategy is in progress.\11\ Following a trading halt, the System will 
conduct a COOP for any Complex Order Strategy that has a Complex Order 
present or that had previously opened prior to the trading halt.\12\ 
The System will initiate the COOP once trading in each option component 
of a Complex Order Strategy has opened (or re-opened following a 
trading halt) for a certain configurable time not to exceed 60 
seconds.\13\ This

[[Page 81394]]

opening delay timer is intended to allow options prices to stabilize 
after the options opening before permitting Complex Orders to become 
available for trading.\14\ COOPs for different Complex Order Strategies 
may occur at the same time.\15\
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    \11\ Phlx Rule 1080.07(d)(ii) currently indicates that the 
System will conduct a COOP if a Complex Order is pending at the 
opening or re-opening following a trading halt. The Phlx is revising 
the rule to indicate that the receipt of an order will trigger a 
COOP, regardless of whether the order is still pending. For example, 
an order that was no longer pending because the sender has canceled 
the order will nonetheless trigger a COOP. See Notice, 80 FR at 
35997.
    \12\ See Phlx Rule 1080.07(d)(ii).
    \13\ See id. The proposal deletes provisions in Phlx Rule 
1080.07(d)(ii)(A)(2) which states that the System will not engage 
the COOP Timer upon re-opening Complex Order trading when either: 
(a) the Exchange's automated execution system was disengaged and 
subsequently re-engaged, or (b) the Phlx XL Risk Monitor Mechanism 
was engaged and subsequently disengaged. These provisions are 
incorrect because the Exchange cannot disengage its automatic 
execution system and because the operation of the Risk Monitor 
Mechanism does not impact the COOP Timer. See Notice, 80 FR at 
35998. The proposal also deletes the references to Phlx Rule 
1080.07(d)(ii)(A)(2) in Phlx Rules 1080.07(c)(ii) and (d)(ii)(A)(1). 
In addition, the proposal deletes the provision in Phlx Rule 
1080.07(c)(ii)(D) indicating that Complex Orders will not trade on 
Phlx XL when the Phlx's automated execution system is disengaged for 
any options component of a Complex Order. See Amendment No. 1.
    \14\ See Notice, 80 FR at 36004.
    \15\ See Notice, 80 FR at 35998.
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    The COOP is comprised of two phases, the COOP Timer and the COOP 
Evaluation.\16\ During the COOP Timer, the Phlx will send a broadcast 
message indicating that a COOP has been initiated for a Complex Order 
Strategy (``Complex Order Opening Auction Notification'').\17\ The 
Complex Order Opening Auction Notification, which is intended to 
attract interest to the opening process and encourage the opening of a 
Complex Order Strategy, will identify the Complex Order Strategy, the 
opening price (based on the maximum number of contracts that can be 
executed at one particular price, except if there is no price at which 
any orders may be executed), and the imbalance side and volume, if 
any.\18\ The Complex Order Opening Notification starts the COOP Timer, 
during which Phlx XL Participants may submit responses to the Complex 
Order Opening Auction Notification.\19\ Complex Orders received prior 
to the COOP Timer and Complex Orders received during the COOP Timer 
that are not marked as a response to the Complex Order Opening Auction 
Notification will be visible to Phlx XL participants upon receipt.\20\
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    \16\ See Phlx Rule 1080.07(d)(ii).
    \17\ See Phlx Rule 1080.07(d)(ii)(A)(1). The Complex Order 
Opening Auction Notification is sent over an order feed, Phlx 
Orders, which contains Complex Order information, as well as over 
the Specialized Quote Feed. See Notice, 80 FR at 35998.
    \18\ See Phlx Rule 1080.07(d)(ii)(A)(1) and Notice, 80 FR at 
36004.
    \19\ See Phlx Rule 1080.07(d)(ii)(A)(1).
    \20\ See Phlx Rule 1080.07(d)(ii)(A)(4).
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    New subparagraphs (1), (2), and (3), of Phlx Rule 1080.07(d)(ii)(B) 
describe the manner in which market participants may respond to a 
Complex Order Opening Auction Notification. Phlx XL participants \21\ 
may bid and/or offer on either or both side(s) of the market during the 
COOP Timer by submitting one or more Complex Orders in $0.01 increments 
(a ``Complex Order Response'').\22\ A Complex Order Response that is 
marked as a response will not be visible to Phlx XL participants.\23\
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    \21\ Under Phlx Rule 1080.07(a)(vii), as proposed to be amended, 
``Phlx XL participant'' ``means SQTs, RSQTs, non-SQT ROTs, 
specialist and non-Phlx market makers on another exchange; non-
broker-dealer customers, Firms and non-market maker off-floor 
broker-dealers; and Floor Brokers using the Options Floor Broker 
Management System.
    \22\ See Phlx Rule 1080.07(d)((ii)(B) and Amendment No. 2.
    \23\ See Phlx Rule 1080.07(d)(ii)(B)(3). In contrast, a Complex 
Order submitted during the COOP Timer that is not marked as a 
response will be visible to Phlx XL participants upon receipt. See 
Phlx Rule 1080.07(d)((ii)(A)(4).
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    In addition to submitting Complex Order Responses, Phlx XL market 
makers \24\ may bid and/or offer on either or both side(s) of the 
market during the COOP Timer by submitting one or more bids/offers 
known as COOP Sweeps.\25\ A Phlx XL market maker may submit multiple 
COOP Sweeps at different prices in increments of $0.01 in response to a 
Complex Order Opening Auction Notification, regardless of the minimum 
trading increment applicable to the specific series.\26\ A Phlx XL 
market maker may change the size of a previously submitted COOP Sweep 
during the COOP Timer.\27\ Phlx XL market makers are the only 
participants that may submit COOP Sweeps.\28\ According to the Phlx, 
the Exchange developed COOP Sweeps to allow Phlx XL market makers to be 
able to expeditiously submit one-sided responsive interest without 
having to enter an order, which involves a different protocol and 
method of entry.\29\ The Phlx states that COOP Sweeps were intended to 
encourage Phlx XL market makers to submit responsive interest while 
managing risk, utilizing a single protocol.\30\ The Phlx notes that the 
ability to enter two-sided quotes also is available only to Phlx XL 
market makers.\31\ The Phlx represents that there is no advantage to 
submitting a COOP Sweep rather than a Complex Order, and that market 
participants who are not Phlx XL market makers are not disadvantaged by 
their inability to submit COOP Sweeps, much as they are not 
disadvantaged by their inability to submit quotes or sweeps for non-
Complex Orders.\32\ In this regard, the Phlx states that Phlx XL 
participants who are not market makers may submit Immediate-or-Cancel 
(``IOC'') orders, which behave in the same manner as a sweep.\33\
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    \24\ Under Phlx Rule 1080.07(a)(vii), as proposed to be amended, 
a Phlx XL market maker is an SQT, RSQT, or a specialist.
    \25\ See Phlx Rule 1080.07(d)(ii)(B). A COOP Sweep is a one-
sided electronic quotation at a particular price submitted for 
execution against opening trading interest in a particular Complex 
Order Strategy. See id.
    \26\ See Phlx Rule 1080.07(d)(ii)(B)(1).
    \27\ See Phlx Rule 1080.07(d)(ii)(B)(2). The System uses a Phlx 
XL market maker's most recently submitted COOP Sweep at each price 
level as the market maker's response at that price level, unless the 
COOP Sweep has a size of zero. A COOP Sweep with a size of zero will 
remove a Phlx XL market maker's COOP Sweep from that COOP at that 
price level. See id.
    \28\ See Notice, 80 FR at 35999. Similarly, as discussed more 
fully below, Phlx XL market makers are the only participants that 
may submit sweeps of non-Complex Orders, COLA Sweeps, and CBOOK 
Sweeps. See id. and Amendment No. 1.
    \29\ See id. The Phlx states that Phlx XL market makers use a 
particular quoting protocol to submit quotes and sweeps to the Phlx. 
See Notice, 80 FR at 36004.
    \30\ See id.
    \31\ See Notice, 80 FR at 36004.
    \32\ See id. In addition, the Phlx notes that some Phlx XL 
market makers choose to submit their interest in the form of a 
Complex Order. See Notice, 80 FR at 35999.
    \33\ See Notice, 80 FR at 36004.
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    COOP Sweeps and Complex Order Responses will not be visible to any 
participant and will not be disseminated by the Exchange.\34\ The Phlx 
believes that this information would not be useful due to the 
temporary, quick nature of the COOP.\35\ COOP Sweeps and Complex Order 
Responses that remain unexecuted at the end of the COOP Timer after all 
executions have been completed will expire.\36\ A Complex Order 
submitted during the COOP Timer that is not marked as a response will 
be available to be traded after the opening of the Complex Order 
Strategy unless it is marked IOC.\37\ Such a Complex Order will be 
placed on the CBOOK if it is not executed during the opening.\38\
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    \34\ See Phlx Rule 1080.07(d)(ii)(B)(3).
    \35\ See Notice, 80 FR at 36004.
    \36\ See id.
    \37\ See id.
    \38\ See Amendment No. 2.
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    Upon expiration of the COOP Timer, the COOP Evaluation begins.\39\ 
During the COOP Evaluation, the System determines, for a Complex Order 
Strategy, the price at which the maximum number of contracts may trade, 
taking into account Complex Orders marked all-or-none (which will be 
executed if possible), unless the maximum number of contracts may trade 
only without including all-or-none orders.\40\ The Phlx will open the 
Complex Order Strategy at that price, executing marketable trading 
interest in the following order: first, non-broker-dealer customers in 
time priority; next, Phlx XL market makers on a pro rata

[[Page 81395]]

basis; and, lastly, all other participants on a pro rata basis.\41\ The 
imbalance of Complex Orders that are unexecutable at that price will be 
placed on the CBOOK.\42\
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    \39\ See Phlx Rule 1080.07(d)(ii)(C).
    \40\ See id. and Amendment No. 1. See Notice, 80 FR at 35999, 
for examples illustrating the handling of all-or-none orders at the 
opening. The Phlx notes that an all-or-none Complex Order will be 
executed if the price and size of the all-or-none order meets the 
criterion of executing the maximum number of contracts possible to 
establish the COOP Evaluation price. See Amendment No. 1.
    \41\ See Phlx Rule 1080.07(d)(ii)(C).
    \42\ See id.
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    If the System determines at the end of the COOP Timer that no trade 
is possible (i.e., there are no market or marketable limit Complex 
Orders or COOP Sweeps, Complex Orders or COOP Sweeps that are equal to 
or improve the cPBBO,\43\ and/or Complex Orders or COOP Sweeps that 
cross within the cPBBO in the System), all Complex Orders received 
during the COOP Timer will be placed on the CBOOK.\44\ If the System 
determines that a trade is possible (i.e., there are market or 
marketable limit Complex Orders or COOP Sweeps, Complex Orders or COOP 
Sweeps that are equal to or improve the cPBBO, and/or Complex Orders or 
COOP Sweeps that cross within the cPBBO in the System), Phlx Rule 
1080.07(d)(ii)(C)(2) describes the executions that will occur.\45\ The 
Phlx notes that the opening price logic maximizes the number of 
contracts executed during the opening process and ensures that residual 
contracts of partially executed orders or quotes are at a price equal 
to or inferior to the opening price.\46\ The logic ensures that there 
is no remaining unexecuted interest available at a price that crosses 
the opening price.\47\ If multiple prices exist that ensure that there 
is no remaining unexecuted interest available through such price(s), 
the opening logic chooses the midpoint of such price points.\48\ A 
Complex Order Strategy will be open after the COOP even if no 
executions occur.\49\ Thus, a Complex Order Strategy will be open based 
on the fact that interest was received, regardless of whether the 
response interest results in an execution.\50\
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    \43\ The cPBBO is the best net debit or credit price for a 
Complex Order Strategy based on the Phlx best bid and/or offer 
(``PBBO'') for the individual options components of the Complex 
Order Strategy and, where the underlying security is a component of 
the Complex Order Strategy, the national best bid and/or offer for 
the underlying security. The cPBBO is a calculated number and does 
not include orders on the CBOOK or interest on other exchanges. See 
Notice, 80 FR at 35999-36000, and Phlx Rule 1080.07(a)(iv).
    \44\ See Phlx Rule 1080.07(d)(ii)(C)(1).
    \45\ If a trade is possible based on interest in the System, the 
System will do the following: if such interest crosses and does not 
match in size, the execution price is based on the highest (lowest) 
executable offer (bid) price when the larger sized interest is 
offering (bidding), provided, however, that if there is more than 
one price at which the interest may execute, the execution price 
when the larger sized interest is offering (bidding) is the midpoint 
of the highest (lowest) executable offer (bid) price and the next 
available executable offer (bid) price rounded, if necessary, down 
(up) to the closest minimum trading increment. If the crossing 
interest is equal in size, the execution price is the midpoint of 
lowest executable bid price and the highest executable offer price, 
rounded, if necessary, up to the closest minimum trading increment. 
Executable bids/offers include any interest which could be executed 
at the net price without trading through residual interest or the 
cPBBO, or without trading at the cPBBO where there is non-broker-
dealer customer interest at the best bid or offer for any leg, 
consistent with Rule 1080.07(c)(iii). if there is any remaining 
interest after complex interest has traded against other complex 
interest, there is no component that consists of the underlying 
security, and the order is not marked all-or-none, such interest may 
``leg'' whereby each options component may trade at the PBBO with 
existing quotes and/or limit orders on the limit order book for the 
individual components of the Complex Order; provided that remaining 
interest may execute against any eligible Complex Orders received 
before legging occurs. If the remaining interest has a component 
that consists of the underlying security or is an all-or-none 
Complex Order, such Complex Order will be placed on the CBOOK. See 
Phlx Rule 1080.07(d)(ii)(C)(2). Examples illustrating the execution 
of orders pursuant to Phlx Rule 1080.07(d)(ii)(C)(2) appear in the 
Notice, 80 FR at 36000-36001.
    \46\ See Notice, 80 FR at 36000.
    \47\ See id.
    \48\ See id.
    \49\ See Phlx Rule 1080.07(d)(ii)(C)(3).
    \50\ See Notice, 80 FR at 36004.
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    The proposal revises the rules describing the operation of the COLA 
to indicate that the System uses the process set forth in Phlx Rule 
1080.07(d)(ii)(C)(2) not only to determine executions at the conclusion 
of the COOP, but also to determine executions against a COLA-eligible 
order at the conclusion of the COLA.\51\ The Phlx believes that the 
correction of Phlx Rule 1080.07(e)(viii)(C)(3) and the level of detail 
provided in the revised rule will help Phlx participants understand how 
their execution price is determined, and that the method is fair and 
orderly, based on both size and midpoint, which reflect the totality of 
the remaining interest.\52\ In addition, the Phlx believes that this 
execution process is consistent with just and equitable principles of 
trade because it is based on the price of the larger sized interest, 
which affects more options contracts and is likely to result in more 
executions than the current rule would provide.\53\ The Phlx further 
notes that the provision in Phlx Rules 1080.07(d)(ii)(C)(2) and 
1080.07(e)(viii)(C)(3) allowing certain remaining interest to ``leg'' 
by trading at the PBBO with existing quotes and/or limit orders on the 
limit order book may provide any opportunity for additional Complex 
Orders to trade.\54\
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    \51\ See Phlx Rule 1080.07(e)(viii)(C)(3) and Notice, 80 FR at 
36003.
    \52\ See Notice, 80 FR at 36003.
    \53\ See id. at 36005.
    \54\ See id.
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B. IOC Orders and Do Not Auction (``DNA'') Orders

    The proposal revises the Phlx's rules to describe the handling of 
IOC and DNA Orders at the opening. Complex Orders marked as IOC or DNA 
that are received before the COOP is initiated will be cancelled and 
will not participate in the COOP, although a COOP will occur in that 
Complex Order Strategy.\55\ The Phlx believes that it is appropriate 
for the COOP to occur even if the IOC or DNA order that triggered the 
COOP has been cancelled because the opening process is intended to open 
key strategies in which participants are interested.\56\
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    \55\ See Phlx Rule1080.07(d)(ii)(A)(5). In such cases, a Complex 
Order Opening Auction Notification is sent with a price and size of 
zero, and a buy side. See Notice, 80 FR at 35998. The Phlx notes 
that non-Complex Orders marked IOC that are received prior to the 
opening of the option also are cancelled upon receipt. See Notice, 
80 FR at 36004.
    \56\ See Notice, 80 FR at 35998.
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    IOC Complex Orders received during a COOP will join the COOP and 
will be treated like any other Complex Order, except that they will be 
cancelled at the end of the COOP Timer if they are not executed.\57\ 
DNA Complex Orders received during a COOP will be cancelled and will 
not participate in the COOP because allowing them to join the COOP 
would involve a delay.\58\
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    \57\ See Notice, 80 FR at 35998. The Phlx notes that this is 
intended to try to execute the order, because the order may be 
responding to the Complex Order Opening Auction Notification. See 
id.
    \58\ See Phlx Rule 1080.07(d)(ii)(A)(5) and Notice, 80 FR at 
35998.
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    The proposal also revises Phlx Rule 1080.07(b)(iii) to state that 
Floor Brokers using the Options Floor Broker Management System may 
enter Complex Orders as IOC only on behalf of ``SQTs, RSQTs, non-SQT 
ROTs, specialists, non-Phlx market makers on another exchange, and 
Firms,'' rather than on behalf of ``broker-dealers or affiliates of 
broker-dealers.'' The Phlx states that this revision merely replaces 
vague terms (broker-dealers or affiliates of broker-dealers) with more 
precise terms that are linked to definitions in the rule.\59\
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    \59\ See id. at 36005.
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C. Amendments to the COLA Rules

    The proposal makes several changes to the rules governing the 
operation of the COLA. First, the proposal amends and corrects Phlx 
Rule 1080.07(e)(iv) to add a definition of COLA Sweep and to indicate 
that only Phlx XL market makers, rather than Phlx XL participants, may 
submit COLA

[[Page 81396]]

Sweeps.\60\ Any COLA Sweeps that remain unexecuted at the end of the 
COLA Timer once all executions are complete will expire.\61\ Phlx XL 
participants may bid and/or offer on either or both side(s) of the 
market during the COLA timer by submitting one or more Complex Orders 
in $0.01 increments.\62\ A Complex Order marked as a response will not 
be visible to any participant and will not be disseminated by the 
Phlx.\63\ A Complex Order marked as a response will expire if it is 
unexecuted at the end of the COLA Timer.\64\ A Complex Order not marked 
as a response that is not executed during the COLA will be available to 
be placed on the CBOOK, unless the order is marked IOC.\65\
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    \60\ A COLA Sweep in is a one-sided electronic quotation 
submitted for execution against other trading interest in a 
particular Complex Order Strategy. See Phlx Rule 1080.07(e)(iv).
    \61\ See id.
    \62\ See Amendment No. 2.
    \63\ See id.
    \64\ See id.
    \65\ See id.
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    Second, the proposal revises the specialist allocation provisions 
in Phlx Rule 1080.07(e)(vi)(C). Phlx Rule 1080.07(e)(vi)(C) currently 
provides that, after customer marketable Complex Orders have been 
executed against a COLA-eligible order, a specialist that submits a 
COLA Sweep for the same price as other COLA Sweeps that are eligible 
for execution against the COLA-eligible order will be entitled to 
receive the greater of: (1) The proportion of the aggregate size at the 
cPBBO associated with such specialist's COLA Sweep, SQT and RSQT COLA 
Sweeps, and non-SQT ROT Complex Orders on the CBOOK; (2) the Enhanced 
Specialist Participation as described in Phlx Rule 1014(g)(ii) (which 
provides a specialist with an enhanced participation of 30% of the 
remainder of an order under certain circumstances); or (3) 40% of the 
remainder of the order. The proposal eliminates Phlx Rule 
1080.07(e)(vi)(C)(3), which would provide the specialist with 40% of 
the remainder of a COLA-eligible order.\66\ The Phlx states that this 
provision, which does not currently operate, may have been an error 
because, given the ``greater of'' language in the rule, the 30% 
Enhanced Specialist Participation contemplated under Phlx Rule 
1080.07(e)(vi)(C)(2) would never have operated.\67\ The proposal also 
corrects Phlx Rule 1080.07(e)(vi)(C)(1) by deleting language that 
limits the specialist's entitlement to the proportion of the aggregate 
size ``at the cPBBO'' associated with the specialist's COLA Sweep, SQT 
and RSQT Sweeps, and non-SQT ROT Complex Orders on the CBOOK. The Phlx 
states that the System instead looks at all of a specialist's COLA 
Sweeps at a particular price, not just at the cPBBO, and compares them 
to all other Phlx XL market maker interest at that price.\68\ The 
revised rule will take into account all expressed interest at each 
price, instead of interest only at the cPBBO, which should maximize the 
number of contracts executed.\69\ Thus, under Phlx Rule 
1080.07(e)(vi)(C), as amended, a specialist would be entitled to 
receive the greater of: (1) The proportion of the aggregate size 
associated with the specialist's COOA Sweep, SQT and RSQT COLA Sweeps, 
and non-SQT ROT Complex Orders on the CBOOK; or the 60/40/30% Enhanced 
Specialist Participation described in Rule 1014(g)(ii). The Phlx notes 
that this is the same enhanced pro-rata specialist allocation that 
applies to non-Complex Orders.\70\
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    \66\ See Notice, 80 FR at 36001.
    \67\ See Notice, 80 FR at 36001.
    \68\ See id.
    \69\ See Notice, 80 FR at 36005.
    \70\ See Notice, 80 FR at 36001.
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    Third, the proposal revises Phlx Rule 1080.07(e)(vii) to indicate 
that COLA Sweeps that exceed the size of a COLA-eligible order are 
eligible to trade with other incoming COLA-eligible orders, COLA 
Sweeps, and any other interest received during the COLA Timer after the 
initial COLA-eligible order has been executed ``to the fullest extent 
possible,'' rather than ``in its entirety.'' \71\ The Phlx notes that a 
COLA-eligible order need not be executed in its entirety for other 
interest to be executed.\72\ The Phlx states that permitting executions 
of responsive interest at a different price, after the COLA-eligible 
order has been executed to the fullest extent possible, benefits the 
responsive interest.\73\ The Phlx further notes that fewer contracts 
would have been executed if the System operated as described in the 
current rule text, because fewer contracts would have been available 
for execution against the COLA-eligible order and other responsive 
interest.\74\
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    \71\ The Phlx also proposes to make this change in Phlx Rules 
1080.07(e)(vii), (e)(viii)(B), (e)(viii)(C)(1), (e)(viii)(C)(1)(e), 
(e)(viii)(C)(2), (e)(viii)(C)(2)(e) and (e)(viii)(C)(3). See Notice, 
80 FR at 36001.
    \72\ See Notice, 80 FR at 36002. For example, where a COLA-
eligible order is bidding $2.00 for 20 contracts, and other interest 
consists of a $2.10 bid for 10 contracts, a $2.10 offer for 10 
contracts, and a $2.00 offer for 10 contracts, the buy and sell 
orders at $2.10 can execute against each other even though the COLA-
eligible order was not fully executed. See id.
    \73\ See Notice, 80 FR at 36002.
    \74\ See Notice, 80 FR at 36002.
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    Fourth, the proposal deletes from Phlx Rule 1080.07(e)(vi)(B) a 
provision stating that, for allocation purposes, the size of a COLA 
Sweep or responsive Complex Order received during the COLA Timer will 
be limited to the size of the COLA-eligible order.\75\ The Phlx accepts 
size in excess of the COLA-eligible order size, which can be executed 
against remaining interest after the COLA-eligible order has been 
executed to the fullest extent possible.\76\ This change will reflect 
the Phlx's current practice and permit the full size of responding 
interest to trade against non-COLA-eligible interest.\77\ The Phlx 
believes that permitting the trading of interest in excess of the COLA-
eligible volume benefits market participants because it helps to ensure 
that as many contracts as possible are executed.\78\
---------------------------------------------------------------------------

    \75\ The proposal also revises Phlx Rule 1080.07(e)(vi)(B) to 
refer to ``Complex Orders and COLA Sweeps,'' that are eligible for 
execution against the COLA-eligible order at the same price, rather 
than Complex Orders, COLA Sweeps, Phlx XL participant Complex 
Orders, and/or non-customer off-floor broker-dealer Complex Orders 
that are eligible for execution against the COLA-eligible order at 
the same price.
    \76\ The remaining interest consists of any potential interest 
that has been received, including orders, quotes, COLA Sweeps, and 
individual leg market interest. See Notice, 80 FR at 36001.
    \77\ See Notice, 80 FR at 36002.
    \78\ See id.
---------------------------------------------------------------------------

D. Amendments Concerning Firms and Non-Market Maker Off-Floor Broker- 
Dealers

    The proposal adds a new defined term, ``Firm,'' that will 
distinguish Firms from other non-market maker off-floor broker-
dealers.\79\ The proposal amends Phlx Rule 1080.07(e)(i)(B)(1) to 
indicate that orders from Firms are not COLA-eligible and therefore 
will not trigger a COLA.\80\ In contrast, orders from non-market maker 
off-floor broker-dealers that are not Firms will be eligible to start a 
COLA.\81\ The proposal amends Phlx Rule 1080.07(e)(viii)(C)(2) to 
indicate that orders from Firms (like orders from Phlx and non-Phlx 
market makers) will be treated as non-customer orders for purposes of 
determining the execution price that their orders receive when 
executing against COLA-eligible

[[Page 81397]]

orders.\82\ In addition, the proposal amends Phlx Rule 
1080.07(e)(viii)(C)(2)(d) to indicate that the System executes non-
customer (i.e., Phlx market maker, Firm, and non-Phlx market maker) 
Complex Orders not in the order in which they were received, as the 
rule currently indicates, but on a pro-rata basis among Phlx market 
maker interest and then, again on a pro-rata basis, among Phlx XL 
participants at each price level, as described in Phlx Rule 
1080.07(vi)(B).\83\
---------------------------------------------------------------------------

    \79\ Phlx Rule 1080.07(a)(x) defines ``Firm'' to mean ``a 
broker-dealer trading for its own (proprietary) account that is: a 
member of The Options Clearing Corporation (``OCC'') or maintains a 
Joint Back Office (``JBO'') arrangement with an OCC member. Unless 
otherwise specified, Firms are included in the category of non-
market-maker off-floor broker-dealer.''
    \80\ The proposal also deletes from Phlx 1080.07(e)(i)(B)(1) the 
requirement that a COLA-eligible Complex Order improve the cPBBO for 
the specific Complex Order Strategy, because this requirement is 
already stated in Phlx Rule 1080.07(e)(i)(A).
    \81\ See Notice, 80 FR at 36003.
    \82\ See Amendment No. 1. Phlx Rule 1080.07(e)(viii)(C)(2) (2), 
as amended, provides, in relevant part, that: Incoming non-customer 
(Phlx market makers, Firms and non-Phlx market makers) Complex 
Orders that are received during the COLA Timer on the opposite side 
of the market from the COLA-eligible order with a price equal to or 
better than the best priced Complex Order or COLA Sweep will be 
executed against the COLA eligible order (which will be executed in 
its entirety first as described in subparagraph (B) above) or other 
Complex Orders or COLA Sweeps as follows:
     (a) If such incoming non-customer Complex Order is a limit 
order at the same price as the best priced Complex Order or COLA 
Sweep, the incoming non-customer Complex Order will be executed at 
such price, subject to the provisions set forth sub-paragraph (e) 
above.
     (b) If such incoming non-customer Complex Order is a limit 
order that improved the best priced Complex Order or COLA Sweep, the 
incoming non-customer Complex Order will be executed at the limit 
order price.
     (c) If such incoming non-customer Complex Order is a market 
order or a limit order that crosses the cPBBO, the incoming non-
customer Complex Order will be executed at a price of $0.01 better 
than the cPBBO on the same side of the market as the COLA-eligible 
order.
    \83\ See Notice, 80 FR at 36002.
---------------------------------------------------------------------------

    According to the Phlx, the trading style and needs of Firms are 
more like market makers.\84\ The Phlx notes that Firms are large, well-
capitalized broker-dealers that trade for their own account and 
generally submit large orders, including orders that facilitate their 
clients' orders or offset large positions taken to accommodate their 
customers.\85\ Thus, the Phlx states that Firms, in general, are 
commonly viewed as providers of liquidity, much like market makers.\86\ 
In addition, the Phlx believes that Firms do not expect or need their 
Complex Orders to trigger a COLA, because this is a feature more 
commonly associated with customers than with liquidity providers.\87\ 
The Phlx also states that if Firms' orders were able to start a COLA, 
this could impede the ability of other Complex Orders to begin a 
COLA.\88\ Finally, the Phlx states that it could impede the submission 
of competitive responses and/or quoting if market makers are hesitant 
to provide an aggressive price for a COLA that may have been initiated 
by a Firm.\89\
---------------------------------------------------------------------------

    \84\ See id.
    \85\ See id. at 36003-36004.
    \86\ See id. at 36004.
    \87\ See id. at 36005.
    \88\ See Amendment No. 1.
    \89\ See id.
---------------------------------------------------------------------------

    Third, the proposal amends Phlx Rule 1080.07(e)(viii)(C)(1) to 
indicate that orders from non-market maker off-floor broker-dealers 
that are not Firms will be treated like non-broker-dealer customer 
orders for purposes of determining the execution price their orders 
will receive when executing against a COLA-eligible order.\90\ For 
purposes of this rule, the Phlx treats orders from both non-broker-
dealer customers and non-market maker off-floor broker-dealers (other 
than Firms) as customer orders because non-market maker off-floor 
broker-dealers seek liquidity and are therefore more like customers 
than other participants, which generally provide liquidity.\91\ In 
addition, the proposal amends Phlx Rule 1080.07(e)(viii)(C)(1)(d) to 
specify that, rather than executing all customer Complex Orders in the 
order in which they were received, as the rule currently provides, non-
broker-dealer customer orders at the same price are executed in time 
priority, while non-market-maker off-floor broker-dealer orders at the 
same price are executed on a pro-rata basis. The Phlx states that the 
pro rata allocation for non-market maker off-floor broker-dealers is 
consistent with the priority rules applicable in other aspects of the 
execution of Complex Orders and simple orders.\92\
---------------------------------------------------------------------------

    \90\ Phlx Rule 1080.07(e)(viii)(C)(1), as amended, defines 
incoming customer Complex Orders to mean orders from non-broker-
dealer customers and non-market-maker off-floor broker-dealers, 
other than Firms. See Amendment No. 1. Phlx Rule 
1080.07(e)(viii)(C)(1), as amended, provides, in relevant part, that 
(1) Incoming customer (non-broker-dealer customer and non-market 
maker off-floor broker-dealer (other than Firms)) Complex Orders 
that are received during the COLA Timer on the opposite side of the 
market from the COLA-eligible order with a price equal to or better 
than the best priced Complex Order or COLA Sweep will be executed 
against the COLA eligible order (which will be executed to the 
fullest extent possible first as described in sub-paragraph (B) 
above) or other Complex Orders or COLA Sweeps as follows:
     (a) If such incoming customer Complex Order is a limit order at 
the same price as the best priced Complex Order or COLA Sweep, the 
incoming Complex Order will be executed at such price.
     (b) If such incoming Complex Order is a limit order that 
improved the best priced Complex Order or COLA Sweep, the incoming 
customer Complex Order will be executed at the mid-point of the best 
priced Complex Order or COLA Sweep and the limit order price, 
rounded, if necessary, to the closest minimum trading increment to 
the benefit of the COLA-eligible order.
     (c) If such incoming customer Complex Order is a market order 
or a limit order that crosses the cPBBO, the incoming Complex Order 
will be executed at the mid-point of the cPBBO on the same side of 
the market as the COLA-eligible order and the best priced Complex 
Order or COLA Sweep, rounded, if necessary, to the closest minimum 
trading increment to the benefit of the COLA-eligible order.
    \91\ See Notice, 80 FR at 36002. See also Amendment No. 1 
(clarifying that the non-market maker off-floor broker-dealers 
referenced in this rule do not include Firms).
    \92\ See Notice, 80 FR at 36002, and Phlx Rules 
1080.07(e)(vi)(B) and 1014(g)(vii).
---------------------------------------------------------------------------

E. Amendment to the CBOOK Rules

    Phlx Rule 1080.07(f)(i)(F) currently provides that a Complex Order 
received during the final 10 seconds of the trading session is placed 
on the CBOOK.\93\ The proposal amends this provision to indicate that 
the System will place a Complex Order on the CBOOK if the Complex Order 
is received during the final configurable number of seconds of the 
trading session after any marketable portion of the Complex Order is 
executed. The Phlx believes that 10 seconds may be too long and could 
prevent executions from occurring, and that a COLA may be triggered and 
completed in less than three seconds.\94\ Thus, the Phlx believes that 
a time period of less than 10 seconds would be appropriate to maximize 
executions.\95\ The Phlx will notify participants on its Web site in 
advance of a change to the number of seconds.\96\ The proposal also 
revises this rule to indicate that a Complex Order will be placed on 
the CBOOK after the execution of any marketable portion of the Complex 
Order because the System seeks to execute any portion of any order that 
can be traded before placing the remainder of the order on the 
CBOOK.\97\
---------------------------------------------------------------------------

    \93\ The Phlx notes that the System recently operated such that 
a Complex Order received during the final three seconds of the 
trading session, rather than the final 10 seconds of the trading 
session, was placed on the CBOOK. Accordingly, the Phlx states that 
more Complex Orders may have started a COLA than the rule provides 
for and may have been executed, rather than resting on the CBOOK. 
See Notice, 80 FR at 36002.
    \94\ See id.
    \95\ See id.
    \96\ See id.
    \97\ See id. at 36002-36003.
---------------------------------------------------------------------------

    In addition, the proposal revises Phlx Rule 1080.07(f)(ii) to 
indicate that Phlx XL market makers may submit one or more CBOOK Sweeps 
to execute against Complex Order interest on the CBOOK.\98\ A CBOOK 
Sweep, which is similar to a COOP Sweep or a COLA Sweep, will expire if 
it is not executed immediately.\99\ The Phlx notes that a non-Phlx XL 
market maker participant that wanted to submit interest that would 
expire if it is not executed

[[Page 81398]]

immediately would be able to submit an IOC order.\100\
---------------------------------------------------------------------------

    \98\ See Amendment No.1. A CBOOK Sweep is a one-sided electronic 
quotation at a particular price submitted for execution against 
existing interest in a particular Complex Order Strategy on the 
CBOOK. See id.
    \99\ See id.
    \100\ See id.
---------------------------------------------------------------------------

F. All-or-None Orders

    In the current proposal, the Phlx proposes to accept all-or-none 
Complex Orders and specify how they are handled.\101\ In particular, 
the proposal revises Phlx Rule 1080.07(d)(ii)(C) to indicate that, 
during a COOP Evaluation, the System will determine the price at which 
the maximum number of contracts may trade, taking into account Complex 
Orders marked all-or-none (which will be executed if possible), unless 
the maximum number of contracts can only trade without including all-
or-none orders.\102\ In addition, the proposal amends Phlx Rule 
1080.07(e)(vi)(A)(1) to indicate that an all-or-none Complex Order will 
not leg (i.e., execute against quotes or orders for the individual 
components comprising the Complex Order) during a COLA, and that an 
all-or-none Complex Order that is not executed during the COLA will be 
placed on the CBOOK.\103\ Similarly, the proposal amends Phlx Rule 
1080.07(f)(iii)(A) to provide that an all-or-none Complex Order on the 
CBOOK will not execute against quotes or orders on the limit order book 
for the individual components of the Complex Order.
---------------------------------------------------------------------------

    \101\ See Notice, 80 FR at 35999 and 36004. The Phlx previously 
noted that it stopped accepting all-or-none orders on March 17, 
2014, to align the System with its rules. See Notice, 80 FR at 
36004. The Phlx then adopted a definition of all-or-none orders in 
June 2014. See Securities Exchange Act Release No. 72351 (June 9, 
2014), 79 FR 33977 (June 13, 2014) (notice of filing and immediate 
effectiveness of File No. SR-Phlx-2014-39). Phlx Rule 1080.07 
provides that an all-or-none order is an order that is ``to be 
executed in its entirety or not at all. These orders can only be 
submitted for non-broker-dealer customers.'' The Phlx proposes to 
begin accepting all-or-none Complex Orders within 60 days after 
approval of the proposal. See Amendment No. 1.
    \102\ See Amendment No. 1. See Section II(A), supra, for a 
discussion of the treatment of all-or-none orders in the COOP.
    \103\ See id.
---------------------------------------------------------------------------

    The Phlx notes that all-or-none orders are commonly available for 
non-Complex Orders, and that this order type would allow market 
participants to obtain a certain minimum size.\104\ The Phlx believes 
that this contingency is particularly appropriate for Complex Orders 
because of the complexity of the strategies employed by users; the size 
of the order could be relevant to the strategy.\105\ The Phlx further 
believes that not legging all-or-none Complex Orders promotes just and 
equitable principles of trade because the all-or-none contingency 
complicates the expeditious execution of such orders against the 
individual components of the Complex Order.\106\ The Phlx does not 
believe that market participants would expect Complex Orders to leg 
because all-or-none orders are often treated differently because of the 
nature of the contingency.\107\
---------------------------------------------------------------------------

    \104\ See id.
    \105\ See id.
    \106\ See Notice, 80 FR at 36005.
    \107\ See id.
---------------------------------------------------------------------------

G. Amendments to the Spread Priority Rule

    The proposal revises the Phlx Rule 1080.07(c)(iii) to make clear 
that a Complex Order has priority over established bids or offers in 
the marketplace for the individual legs that comprise the Complex Order 
unless the established bid or offer for at least one leg of the Complex 
Order is a non-broker-dealer customer order.\108\ If the established 
bid or offer for at least one leg of the Complex Order is a non-broker-
dealer customer order, then at least one leg of the Complex Order must 
be executed at a better price than the established bid or offer for 
that contract by the minimum trading increment.\109\ Thus, a Complex 
Order may not be executed at the cPBBO if there is non-broker-dealer 
customer interest at the cPBBO.\110\ For example, with respect to a 
Complex Order with four legs, if the established best bid or offer in 
the individual leg market for one component of the Complex Order is a 
non-broker-dealer customer order, and the best bids or offers in the 
individual leg market for the remaining three component legs of the 
Complex Order are market maker quotes, the Complex Order would be 
required to trade at a price that is better than the cPBBO.\111\ The 
Phlx believes that the changes to Phlx Rule 1080.07(c)(iii) clarify the 
rule and preserve customer priority.\112\ The Phlx notes that the 
ability to achieve spread priority over non-customers is common among 
the options exchanges.\113\
---------------------------------------------------------------------------

    \108\ See Amendment No. 1. Phlx Rule 1080.07(c)(iii), as 
amended, provides: (A) Complex Orders consisting of a conforming 
ratio may be executed at a total credit or debit price without 
giving priority to individual bids or offers established in the 
marketplace that are not better than the bids or offers comprising 
such total credit or debit, provided that if any of the bids or 
offers established in the marketplace consist of a non-broker-dealer 
customer order, at least one option leg is executed at a better 
price than the established bid or offer for that option contract by 
the minimum trading increment and no option leg is executed at a 
price outside of the established bid or offer for that option 
contract.
     (B) Where a Complex Order in a conforming ratio consists of the 
underlying security (stock or ETF) and one options leg has priority 
over bids or offers established in the marketplace, except over bids 
or offers established by non-broker-dealer customer orders. However, 
where a Complex Order in a conforming ratio consists of the 
underlying stock or ETF and more than one options leg, the options 
legs have priority over bids and offers established in the 
marketplace, including non-broker-dealer customer orders, if at 
least one options leg improves the existing market for that option.
    \109\ See Phlx Rule 1080.07(c)(iii).
    \110\ See Amendment No. 1. See also Phlx Rule 
1080.07(d)(ii)(C)(2) (stating that executable bids/offers at the 
conclusion of the COOP include any interest that could be executed 
at the net price without trading through residual interest or the 
cPBBO or without trading at the cPBBO where there is non-broker-
dealer customer interest at the best bid or offer for any leg, 
consistent with Phlx Rule 1080.07(c)(iii)).
    \111\ See id.
    \112\ See id.
    \113\ See id.
---------------------------------------------------------------------------

H. Amendment Nos. 1 and 2

    In Amendment No.1, the Phlx proposes to further clarify or add 
detail to several rules, provide additional rationale for certain 
proposed changes, and specify the time when the Phlx plans to begin 
accepting all-or-none Complex Orders. Specifically, Amendment No. 1 
revises Phlx Rule 1080.07(d)(ii)(C) to indicate that all-or-none 
Complex Orders received during the COOP will be executed if possible, 
i.e., when the price and size of the all-or-none order meets the 
criterion of executing the maximum number of contracts possible to 
establish a COOP Evaluation price. Amendment No. 1 revises Phlx Rule 
1080.07(e)(vi)(A)(1) to indicate that an all-or-none order that is not 
executed during a COLA will be placed on the CBOOK. In addition, 
Amendment No. 1 indicates that the Phlx proposes to begin accepting 
all-or-none Complex Orders within 60 days after approval of the 
proposal.
    Amendment No. 1 revises Phlx Rule 1080.07(e)(viii)(C)(1) to clarify 
that, for purposes of that rule, the term ``incoming customer orders'' 
refers to orders from non-broker-dealer customers and non-market maker 
off-floor broker-dealers other than Firms. The Phlx notes that it is 
necessary to exclude from this definition Firms, which otherwise would 
fall within the definition of non-market maker off-floor broker-
dealers. Amendment No. 1 also provides additional analysis to support 
the statutory basis for this proposed change, stating that it is 
consistent with just and equitable principles of trade to treat both 
non-broker-dealer customers and non-market-maker, non-Firm off-floor 
broker-dealers as ``customers'' for purposes of determining the 
execution price of their orders when executing against a COLA-eligible 
order because both non-broker-dealer customers and non-market maker, 
non-Firm off-floor broker-dealers seek liquidity in the marketplace.

[[Page 81399]]

    Amendment No. 1 revises Phlx Rule 1080.07(e)(viii)(C)(2) to specify 
that ``non-customer orders'' for purposes of that rule, refers to 
orders from Phlx market makers, Firms, and non-Phlx market makers.
    Amendment No. 1 revises the text of Phlx Rule 1080.07(c)(iii), the 
Phlx's spread priority rule, to make clear that a Complex Order has 
priority over established bids or offers in the marketplace for the 
individual legs of the order unless the established bid or offer for at 
least one leg is a non-broker-dealer customer order. In addition, 
Amendment No. 1 explains that if the established bid or offer for at 
least one leg of the order is a non-broker-dealer customer order, then 
at least one leg of the Complex Order must be executed at a better 
price than the established bid or offer for that leg. Thus, a Complex 
Order cannot be executed at the cPBBO if there is non-broker-dealer 
customer interest at the cPBBO. For example, with respect to a Complex 
Order with four legs, if the established best bid or offer in the 
individual leg market for one component of the Complex Order is a non-
broker-dealer customer order, and the best bids or offers in the 
individual leg market for the remaining three component legs of the 
Complex Order are market maker quotes, the Complex Order would be 
required to trade at a price that is better than the cPBBO.\114\ 
Amendment No. 1 notes that the ability to achieve spread priority over 
non-customers is common among the options exchanges.
---------------------------------------------------------------------------

    \114\ Amendment No. 1 makes a related technical correction to 
Phlx Rule 1080.07(d)(ii)(C)(2) to indicate that executable bids/
offers during the COOP include any interest that could be executed 
``at the net price'' without trading through residual interest or 
the cPBBO or without trading at the cPBBO where there is broker-
dealer customer interest at the best bid or offer for any leg, 
consistent with Phlx Rule 1080.07(c)(iii).
---------------------------------------------------------------------------

    Amendment No. 1 deletes the provision in Phlx Rule 
1080.07(c)(ii)(D) indicating that Complex Orders will not trade on Phlx 
XL when the Phlx's automated execution system is disengaged for any 
options component of a Complex Order. As noted above and in Amendment 
No. 1, the Phlx cannot disengage its automatic execution system.\115\
---------------------------------------------------------------------------

    \115\ See note 13, supra.
---------------------------------------------------------------------------

    Amendment No. 1 revises Phlx Rule 1080.07(f)(ii) to provide for the 
submission of CBOOK Sweeps. Specifically, Amendment No. 1 revises the 
rule to indicate that Phlx XL market makers may submit one or more 
CBOOK Sweeps to execute against Complex Order interest on the CBOOK. A 
CBOOK Sweep, which is similar to a COOP Sweep or a COLA Sweep, will 
expire if it is not executed immediately. The Phlx notes that a non-
Phlx XL market maker participant that wanted to submit interest that 
would expire if it is not executed immediately would be able to submit 
an IOC order.
    Finally, Amendment No. 1 provides additional rationale for the 
proposal to prevent Firm orders from triggering a COLA. Specifically, 
Amendment No. 1 states that the Phlx believes that if Firm orders were 
able to start a COLA, this could impede the ability of other Complex 
Orders to start a COLA. In addition, the Phlx believes that it could 
impede the submission of competitive responses and/or quoting if market 
makers are hesitant to provide an aggressive price for COLAs that may 
have been initiated by Firms.
    The Phlx believes that it would be consistent with the Act to 
approve Amendment No. 1 on an accelerated basis because the changes 
proposed in Amendment No. 1 provide additional details or 
clarifications to the proposal, without adding new requirements, or 
provide additional rationale or analysis to support the proposed 
changes. As noted above, Amendment No. 1 also specifies that the Phlx 
proposes to begin accepting all-or-none Complex Orders within 60 days 
after approval of the proposal.
    Amendment No. 2 revises Phlx Rule 1080.07(e)(iv) to indicate that 
Phlx XL participants may bid and or offer on either or both side(s) of 
the market during a COLA Timer by submitting one or more Complex Orders 
in $0.01 increments. Amendment No. 2 further provides that a Complex 
Order marked as a response will expire if it is unexecuted at the end 
of the COLA Timer. A Complex Order not marked as a response will be 
placed on the CBOOK if it is not executed during the COLA, unless the 
order is marked IOC. Amendment No. 2 indicates that Complex Orders 
marked as a response will not be visible to any participant and will 
not be disseminated by the Phlx. The Phlx believes that these changes 
should be approved on an accelerated basis because they provide 
additional detail to the rule and clarify the responsive process for a 
COLA. The Phlx also notes that these COLA provisions parallel the 
provisions in Phlx Rule 1080.07(d)(ii)(B) related to the COOP.
    In addition, Amendment No. 2 revises Phlx Rule 1080.07(d)(ii)(B) to 
indicate that Phlx XL participants may respond to a Complex Order 
Opening Auction Notification by submitting Complex Orders in increments 
of $0.01. Amendment No. 2 also indicates that a Complex Order that is 
not marked as a response to a Complex Order Opening Auction 
Notification will be placed on the CBOOK if it is not executed during 
the opening. The Phlx believes that these changes should be approved on 
an accelerated basis because they provide additional detail to the 
rule.

III. Discussion and Commission Findings

    The Commission finds that the proposed rule change, as modified by 
Amendment Nos. 1 and 2, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\116\ In particular, the Commission finds that the 
proposed rule change, as amended, is consistent with Section 6(b)(5) of 
the Act,\117\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, 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.
---------------------------------------------------------------------------

    \116\ In approving the proposed rule change, as amended, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \117\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the COOP rules, as amended, are 
designed to facilitate an orderly opening for Complex Orders, or an 
orderly re-opening following a trading halt. The Phlx states that the 
COOP, which operates in a manner similar to an opening process for 
single leg orders, is designed to facilitate price discovery and to 
execute as much trading interest as possible at the best possible 
price(s).\118\ As described more fully above, the Phlx will conduct a 
COOP for any Complex Order Strategy for which the Phlx received a 
Complex Order prior to the opening, unless that Complex Order Strategy 
is already open.\119\ Upon the initiation of a COOP for a Complex Order 
Strategy, the Phlx will send a broadcast message, the Complex Order 
Opening Auction Notification, that is intended to attract interest to 
the opening process.\120\ The Commission notes that all Phlx XL 
participants may participate in a COOP by submitting one or more 
Complex Orders on either or

[[Page 81400]]

both side(s) of the market in $0.01 increments in response to a Complex 
Order Opening Auction Notification.\121\ The Commission believes that 
the ability of all Phlx XL participants to participate in a COOP 
potentially could lead to more competitive opening auctions, to the 
benefit of investors.
---------------------------------------------------------------------------

    \118\ See Notice, 80 FR at 36004.
    \119\ See Phlx Rule 1080.07(d)(ii). Following a trading halt, 
the Phlx will conduct a COOP for any Complex Order Strategy that has 
a Complex Order present or that had previously opened prior to the 
trading halt. See id.
    \120\ See Notice, 80 FR at 36004, and Phlx Rule 
1080.07(d)(ii)(A)(1).
    \121\ See Phlx Rule 1080.07(d)(ii)(B) and Amendment No. 2.
---------------------------------------------------------------------------

    At the conclusion of the COOP Timer, the System conducts a COOP 
Evaluation to determine the maximum number of contracts that can trade, 
taking into account Complex Orders marked all-or-none (which will be 
executed if possible), unless the maximum number of contracts can only 
trade without including all-or-none orders.\122\ The Phlx will open the 
Complex Order Strategy at that price, executing marketable trading 
interest in the following order: first, to non-broker-dealer customers 
in time priority; next, to Phlx XL market makers on a pro rata basis; 
and then to all other participants on a pro-rata basis.\123\ The 
Commission notes that this allocation methodology is consistent with 
existing Phlx rules.\124\
---------------------------------------------------------------------------

    \122\ See Phlx Rule 1080.07(d)(ii)(C) and Amendment No. 1.
    \123\ See Phlx Rule 1080.07(d)(ii)(C).
    \124\ See, e.g., Phlx Rule 1080.07(vi)(B).
---------------------------------------------------------------------------

    The Phlx states that the opening price logic in Phlx Rule 
1080.07(d)(ii)(C), as amended, which determines the execution price of 
crossing interest in the COOP, maximizes the number of contracts 
executed during the opening process and ensures that residual contracts 
of partially executed orders or quotes are at a price equal to or 
inferior to the opening price.\125\ Thus, the logic ensures that there 
is no remaining unexecuted interest available at a price that crosses 
the opening price.\126\ The proposal also applies this execution 
process to the COLA.\127\ The Commission believes that these execution 
processes should benefit investors by helping to assure the execution 
of as many contracts as possible during the COOP and the COLA.
---------------------------------------------------------------------------

    \125\ See Notice, 80 FR at 36000.
    \126\ See id. If multiple prices exist that ensure that there is 
no remaining unexecuted interest available through such price(s), 
the opening logic chooses the midpoint of such price points. See id.
    \127\ See Phlx Rule 1080.07(e)(viii)(C)(3).
---------------------------------------------------------------------------

    In addition to submitting Complex Orders to respond to a Complex 
Order Opening Auction Notification, Phlx XL market makers may respond 
by submitting one or more COOP Sweeps.\128\ Only Phlx XL market makers 
may submit COOP Sweeps.\129\ Similarly, only Phlx XL market makers may 
submit COLA Sweeps and CBOOK Sweeps to trade with, respectively, a 
COLA-eligible order or interest resting on the CBOOK.\130\ The Phlx 
represents that Phlx XL participants that are not Phlx XL market makers 
are not disadvantaged by their inability to submit Sweeps, just as they 
are not disadvantaged by their inability to submit quotes or Sweeps for 
non-Complex Orders.\131\ The Phlx notes that Phlx XL participants that 
are not Phlx XL market makers may submit IOC orders, which behave in 
the same manner as a Sweep.\132\ The Phlx states that the Exchange 
developed Sweeps to enable Phlx XL market makers to expeditiously 
submit one-sided responsive interest without having to enter an order, 
which involves a different protocol and method of entry than that used 
for submitting quotes and Sweeps; according to the Phlx, Sweeps were 
intended to encourage Phlx XL market makers to submit responsive 
interest while managing risk, utilizing a single protocol.\133\ Based 
on the Phlx's representations that Phlx XL participants that are not 
Phlx XL market makers are not disadvantaged by their inability to 
submit COOP Sweeps, COLA Sweeps, or CBOOK Sweeps, and by the Phlx's 
representation that such non-Phlx XL market maker participants may 
submit IOC orders that behave in the same manner as a Sweep, the 
Commission believes that it is consistent with the Act for the Phlx to 
make COOP Sweeps, COLA Sweeps, and CBOOK Sweeps available only to Phlx 
XL market makers, rather than to all Phlx XL participants.\134\ In 
addition, to the extent that the availability of Sweeps succeeds in 
encouraging Phlx XL market makers to submit trading interest, Sweeps 
potentially could result in the availability of additional liquidity in 
the marketplace, to the benefit of investors.
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    \128\ See id. Although Phlx XL market makers may submit either a 
Complex Order or a COOP Sweep, the Phlx notes that some market 
makers choose to submit their interest in the form of a Complex 
Order. See Notice, 80 FR at 35999.
    \129\ See Phlx Rule 1080.07(d)(ii)(B).
    \130\ See Phlx Rules 1080.07(e)(iv) and 1080.07(f)(ii).
    \131\ See Notice, 80 FR at 36004. See also Notice, 80 FR at 
35999.
    \132\ See Notice, 80 FR at 36004. Like Sweeps, IOC orders expire 
if they are not executed immediately. See also Amendment No. 1 
(stating that a non-Phlx XL market maker participant seeking to 
submit interest that would expire if it was not executed immediately 
would be able to submit an IOC order, and, therefore, that such a 
participant would not be disadvantaged by its inability to submit 
CBOOK Sweeps).
    \133\ See Notice, 80 FR at 35999.
    \134\ The Commission notes that Complex Orders submitted in 
response to a COOP or a COLA function in the same manner as COOP 
Sweeps and COLA Sweeps in several respects. Like COOP Sweeps and 
COLA Sweeps, Complex Orders submitted in response to a COOP or a 
COLA will not be visible to Phlx XL participants or disseminated by 
the Phlx. See Phlx Rules 1080.07(d)(ii)(B)(3) and 1080.07(e)(iv)(C) 
and Amendment No. 2. In addition, Complex Orders submitted in 
response to a COOP or a COLA, like COOP Sweeps and COLA Sweeps, may 
be submitted in $0.01 increments on either or both sides of the 
market. See Phlx Rules 1080.07(d)(ii)(B) and 1080.07(e)(iv) and 
Amendment No. 2.
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    As discussed above, the proposal also describes the handling of IOC 
and DNA orders during the opening process.\135\ The Commission believes 
that the handling of these orders during the opening will provide 
market participants with flexibility to determine the manner in which 
they will trade at the opening.\136\ IOC and DNA orders received prior 
to the initiation of the COOP will be cancelled, although a COOP will 
occur in the Complex Order Strategy of the IOC or DNA order.\137\ The 
Commission believes that conducting a COOP for a Complex Order Strategy 
represented by the cancelled IOC or DNA order could benefit investors 
by allowing the opening of a Complex Order Strategy that investors had 
indicated an interest in trading.
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    \135\ See Phlx Rule 1080.07(d)(ii)(A)(5).
    \136\ Under Phlx Rule 1080.07(d)(ii)(A)(5), IOC orders received 
during the COOP will join the COOP but will be cancelled at the end 
of the COOP Timer if they are not executed. DNA orders received 
during the COOP will be cancelled and will not participate in the 
COOP.
    \137\ See Phlx Rule 1080.07(d)(ii)(A)(5).
---------------------------------------------------------------------------

    Under the proposal, orders from Firms are treated like orders from 
market makers for purposes of triggering a COLA and for purposes of 
determining the execution price that their orders will receive when 
trading against a COLA-eligible order. Specifically, under Phlx Rule 
1080.07(e)(i)(B)(1), as amended, proprietary orders from Firms, like 
orders from market makers, will not be COLA-eligible and therefore will 
not trigger a COLA. In contrast, orders from non-market maker off-floor 
broker-dealers that are not Firms will be COLA-eligible.\138\ The Phlx 
believes that the ability of Firm proprietary orders to start a COLA 
could impede the ability of other orders to initiate a COLA.\139\ In 
addition, the Phlx believes that it could impede the submission of 
competitive responses or quoting if market makers were hesitant to 
provide aggressive prices for COLAs that may have been initiated by 
Firms.\140\ The Commission notes that other options exchanges have

[[Page 81401]]

flexibility in determining the orders that may initiate a complex order 
auction.\141\
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    \138\ See Notice, 80 FR at 36003.
    \139\ See Amendment No. 1.
    \140\ See id.
    \141\ See, e.g., CBOE Rule 6.53C(d)(i)(2) (defining a Complex 
Order Auction (``COA'')-eligible order as a complex order that, as 
determined by the CBOE on a class-by-class basis, is eligible for a 
COA considering, among other things, the complex order origin type 
(i.e., non-broker-dealer public customer, broker-dealers that are 
not market makers or specialists on another options exchange, and/or 
market makers or specialists on another options exchange); and NYSE 
Arca Rule 6,91(c)(1) (defining a COA-eligible order to mean an 
Electronic Complex Order that, as determined by NYSE Arca on a 
class-by-class basis, is eligible for a COA, considering, among 
other things, the order origin type (i.e., Customers, broker-dealers 
that are not Market Makers or specialists on an options exchange, 
and/or Market Makers or specialists on an options exchange).
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    Phlx Rule 1080.07(e)(viii)(C)(2), as amended, treats Firm orders 
like market maker orders for purposes of determining the execution 
price that their orders will receive when executing against a COLA-
eligible order.\142\ The Phlx notes that Firms are large, well-
capitalized broker-dealers that generally submit large orders, 
including orders that facilitate their clients' orders or offset often 
large positions taken to accommodate their customers.\143\ The Phlx 
states that Firms, like market makers, are commonly viewed as providers 
of liquidity.\144\ The proposal also revises Phlx Rule 
1080.07(e)(viii)(C)(2) to indicate that the System executes non-
customer orders not in time priority, but on a pro-rata basis among 
Phlx market-maker interest and then among remaining Firm and non-Phlx 
market maker interest at each price level. The Commission notes that 
this allocation methodology is consistent with existing Phlx Rule 
1080.07(e)(vi)(B). The proposal amends Phlx Rule 
1080.07(e)(viii)(C)(1)(d) to indicate that non-broker-dealer customer 
orders at the same price will be executed in time priority, while non-
Firm, non-market maker off-floor broker-dealer orders at the same price 
will be executed on a pro-rata basis at each price level. The 
Commission notes that this allocation methodology also is consistent 
with existing Phlx rules.\145\
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    \142\ In contrast, Phlx Rule 1080.07(e)(viii)(C)(1), as amended, 
treats non-market maker off-floor broker-dealers that are not Firms 
like non-broker-dealer customers for purposes of determining the 
execution price that their orders will receive when executing 
against a COLA-eligible order. The Phlx states that non-market maker 
off-floor broker-dealers that are not Firms seek liquidity and are 
therefore more like customers than other participants, which 
generally provide liquidity. See Notice, 80 FR at 36002.
    \143\ See Notice, 80 FR at 36003-36004.
    \144\ See Notice, 80 FR at 36004.
    \145\ See, e.g., Phlx Rule 1080.07(e)(vi)(B).
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    The proposal revises Phlx Rule 1080.07(f)(i)(F) to indicate that a 
Complex Order received during the final configurable number of seconds 
of the trading session, rather than during the final 10 seconds of the 
trading session, will be placed on the CBOOK after any marketable 
portion of the Complex Order is executed. The Phlx states that a COLA 
auction may be triggered and completed in less than 10 seconds, and 
thus that the 10-second time period is too long and could prevent 
executions from occurring.\146\ The Commission believes that the 
revised rule will provide the Phlx with flexibility to reduce the time 
period at the end of the trading session during which an order will be 
placed on the CBOOK, which could permit more COLAs to occur and 
potentially result in a greater number of order executions, to the 
benefit of investors. The Commission notes that the Phlx will notify 
participants on its Web site in advance of a change in the number of 
seconds at the end of a trading session during which an order will be 
placed on the CBOOK.\147\
---------------------------------------------------------------------------

    \146\ See Notice, 80 FR at 36002.
    \147\ See id.
---------------------------------------------------------------------------

    The Commission believes that the proposed changes to the spread 
priority provisions in Phlx Rule 1080.07(c)(iii) will benefit market 
participants by clarifying the operation of the rule. Among other 
things, the proposed changes make clear that a Complex Order may not be 
executed at the cPBBO if there is non-broker-dealer customer interest 
at the cPBBO and that, if any of the bids or offers established in the 
marketplace consist of a non-broker-dealer customer order, than at 
least one leg of the Complex Order must be executed at a price better 
than the established price for that leg by the minimum trading 
increment.\148\
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    \148\ See Amendment No. 1. See also Phlx Rules 
1080.07(d)(ii)(C)(2) and 1080.07(e)(viii)(C)(3) (stating that 
executable interest in the COOP and the COLA, respectively, includes 
any interest that could be executed without trading through residual 
Complex Order interest or the cPBBO, or without trading at the cPBBO 
where there is non-broker-dealer customer interest).
---------------------------------------------------------------------------

    The Commission believes that the proposal to revise Phlx Rule 
1080.07(b)(iii) to state that Floor Brokers using the Options Floor 
Broker Management System may enter Complex Orders as IOC only on behalf 
of ``SQTs, RSQTs, non-SQT ROTs, specialists, non-Phlx market makers on 
another exchange, and Firms,'' rather than on behalf of ``broker-
dealers or affiliates of broker-dealers'' will clarify the rule by 
using more precise terms that are defined in Phlx Rule 1080.07.
    The proposal also deletes two provisions that refer, incorrectly, 
to the disengagement of the Phlx's automated execution system.\149\ The 
Phlx notes that the Exchange does not and cannot disengage its 
automatic execution system, which is a fundamental aspect of the 
System.\150\ The Commission believes that correcting these inaccuracies 
will benefit investors by helping to assure that the Phlx's rules 
correctly describe the operation of the System.
---------------------------------------------------------------------------

    \149\ See Phlx Rules 1080.07(d)(ii)(A)(2) and 1080.07(c)(ii)(D). 
See also Amendment No. 1.
    \150\ See Notice, 80 FR at 35998.
---------------------------------------------------------------------------

    Finally, the proposal establishes rules governing the trading of 
all-or-none Complex Orders, including provisions that describe the 
treatment of all-or-none Complex Orders at the opening and indicate 
that all-or-none Complex Orders will not execute against interest in 
the individual leg market.\151\ The Phlx states that the all-or-none 
contingency is particularly appropriate for Complex Orders because the 
size of the order may be relevant to a market participant's 
strategy.\152\ The Commission believes that rules governing the trading 
of all-or-none Complex Orders should provide for the orderly trading of 
all-or-none Complex Orders on the System. The Commission also believes 
that all-or-none Complex Orders could provide investors and other 
market participants with additional flexibility to effectuate their 
investment strategies. The Commission notes that other options 
exchanges also provide for the trading of all-or-none complex 
orders.\153\
---------------------------------------------------------------------------

    \151\ See Phlx Rules 1080.07(d)(ii)(C), 1080.07(e)(vi)(A)(1), 
and 1080.07(f)(iii)(A). The Phlx states that all-or-none Complex 
Orders do not execute against individual leg market interest because 
the all-or-none contingency complicates the expeditious execution of 
these orders against individual leg market interest. See Notice, 80 
FR at 36005.
    \152\ See Notice, 80 FR at 36005.
    \153\ See, e.g., NYSE Arca Rule 6.91(b)(2) and NYSE MKT Rule 
980NY(d)(2).
---------------------------------------------------------------------------

IV. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment Nos. 1 and 2, prior to the 30th day 
after the date of publication of notice of Amendment Nos. 1 and 2 in 
the Federal Register. In Amendment Nos. 1 and 2, the Phlx revised the 
proposal to make the changes discussed in detail above. Notably, in 
Amendment No. 1 the Phlx provides additional rationale for its proposal 
to prevent Firm orders from triggering a COLA, adds a provision 
describing the operation of CBOOK Sweeps, clarifies the spread priority 
provisions in Phlx Rule 1080.07(c)(iii), and establishes an 
implementation period for all-or-none Complex Orders. Amendment No. 1 
also added clarifying

[[Page 81402]]

details to several rules. The Commission believes that Amendment No. 1 
does not raise any novel regulatory issues and instead provides 
additional clarity to the rule text, along with additional analysis of 
how the proposal is consistent with the Act, thus facilitating the 
Commission's ability to make the findings set forth above to approve 
the proposal. Amendment No. 2 revises Phlx Rule 1080.07(e)(iv) to 
indicate that Phlx XL participants may respond to a COLA auction by 
submitting Complex Orders in $0.01 increments. Amendment No. 2 also 
describes the treatment of Complex Orders submitted during a COLA and 
provides additional details regarding Complex Orders submitted during 
the COOP. The Commission believes that Amendment No. 2 does not raise 
any novel regulatory issues and provides clarity regarding the manner 
in which Phlx XL participants may participate in the COLA and the COOP. 
Accordingly, the Commission finds that good cause exists to approve the 
proposal, as modified by Amendment Nos. 1 and 2, on an accelerated 
basis.

V. Solicitation of Comments on Amendment Nos. 1 and 2

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment Nos. 1 
and 2 to the proposed rule change are consistent with the Act. Comments 
may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2015-49 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2015-49. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2015-49 and should be 
submitted on or before January 19, 2016.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\154\ that the proposed rule change (SR-Phlx-2015-49), as modified 
by Amendment Nos. 1 and 2, is approved on an accelerated basis.
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    \154\ 15 U.S.C. 78s(b)(2)).
    \155\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\155\
Brent J. Fields,
Secretary.
[FR Doc. 2015-32654 Filed 12-28-15; 8:45 am]
 BILLING CODE 8011-01-P


