[Federal Register Volume 84, Number 211 (Thursday, October 31, 2019)]
[Notices]
[Pages 58420-58422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23731]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87403; File No. SR-Phlx-2019-46]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx Rule 
1097

October 25, 2019.
    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 October 22, 2019, Nasdaq PHLX LLC (``Phlx'' 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 amend Phlx Rule 1097, ``Limitations on 
Order Entry.''
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes an amendment to Phlx Rule 1097, ``Limitations 
on Order Entry'' to add additional rule text concerning limitations on 
solicited orders. Specifically, the Exchange proposes to reinstate a 
paragraph that was recently removed from Rule 1080. The Exchange 
recently filed a rule change \3\ which, among other thing, removed a 
paragraph from Phlx Rule 1080(c)(ii)(C)(2) and (3) which provided,
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    \3\ See Securities Exchange Act Release Nos. 86286 (July 2, 
2019), 84 FR 32794 (July 9, 2019) (SR-Phlx-2019-25) (``July 
Filing'').
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    Solicitation Orders. Order Entry Firms must expose orders they 
represent as agent for at least one (1) second before such orders may 
be automatically executed, in whole or in part, against orders 
solicited from members and non-member broker-dealers to transact with 
such orders, except for: (a) Orders entered into PIXL pursuant to Rule 
1087, (b) orders entered into COLA pursuant to Rule 1080, Commentary 
.02(c)(ii)(e), or (c) orders entered into the QCC mechanism pursuant to 
Rules 1080(o).
    (3) It shall be a violation of Rule 1080(c)(ii)(C) for any Exchange 
member or member organization to be a party to any arrangement designed 
to circumvent Rule 1080(c)(ii)(C) by providing an opportunity for a 
customer, member, member organization, or non-member broker-dealer to 
execute immediately against agency orders delivered to the Exchange, 
whether such orders are delivered via AUTOM or represented in the 
trading crowd by a member or a member organization, except for: (a) 
Orders entered into PIXL pursuant to Rule 1087, (b) orders entered into 
COLA pursuant to Rule 1080, Commentary .02(c)(ii)(e), or (c) orders 
entered into the QCC mechanism pursuant to Rules 1080(o).
    In its July Filing, the Exchange noted that the above language was 
repetitive of language within current Rule 1080(c)(ii)(C)(1), which 
text was relocated to Rule 1097(b) and requires exposure similar to of 
one second and describes the same behavior as current Rule 
1080(c)(ii)(C)(2) and (3) and lists the same exceptions. At this time, 
the Exchange desires to reinstate the rule text of Rule 
1080(c)(ii)(C)(2) and (3) because while some circumstances are covered 
by current Rule 1097(b), after further consideration, there are 
circumstances which are specific to the text that was previously within 
Rule 1080(c)(ii)(C)(2) and (3), such as certain crossing transactions.
    Specifically, the Exchange proposes to adopt rule text similar to 
previous Rule 1080(c)(ii)(C)(2) and (3) within Rule 1097(c) which 
conforms to rule text currently within Nasdaq ISE, LLC, Nasdaq GEMX, 
LLC and Nasdaq MRX, LLC Options 3, Section 22(c). The Exchange proposes 
to similarly title the new section ``Limitations on Solicitation 
Orders.'' The Exchange proposes to state,

    Limitations on Solicitation Orders. Members may not execute 
orders they represent as agent on the Exchange against orders 
solicited from Members and non-Member broker-dealers to transact 
with such orders unless (i) the unsolicited order is first exposed 
on the Exchange for at least one (1) second; (ii) the member has 
been bidding or offering on the Exchange for at least 1 second prior 
to receiving an agency order that is executable against such order; 
(iii) the orders are entered into Price Improvement XL or ``PIXL'' 
pursuant to Rule 1087; (iv) the orders are entered into the Complex 
Order Live Auction or ``COLA'' pursuant to Rule 1098(e); or (v) the 
orders are entered into the Qualified Contingent Cross or ``QCC'' 
mechanism pursuant to Rules 1088 or Options 8, Section 30(e).

The Exchange proposes the same exceptions to order entry for orders 
represented as agent as specified within Rule 1097(b) for principal 
transactions, with one exception. Rule 1097(b) currently contains an 
exception which provides, ``the member proceeds in accordance with the 
crossing rules contained in Rule 1064.'' Rule 1064 was recently 
relocated to Options 8, Section 30, ``Crossing, Facilitation and 
Solicited Orders.'' This rule describes certain crossing orders, 
including facilitation and solicited orders which are available on the 
Exchange's Trading Floor. The Exchange notes that, today, these orders 
are exposed in the trading crowd for at least 1 second in accordance 
with the general provision of Rule 1097 and therefore is not an 
exception to Rule 1097(b) or proposed (c). The Exchange proposes to 
remove this exception from Rule 1097(b) and not include the exception 
within proposed Rule 1097(c), with the exception of noting the Floor 
Qualified Contingent Cross exception within Options 8, Section 30(e). 
Similar to Qualified Contingent Cross Orders that execute 
electronically, the Floor Qualified Contingent Cross Orders is an 
exception to both Rule 1097(b) and (c).

[[Page 58421]]

    The Exchange does not believe the proposed rule text within Rule 
1097(c) is substantively different than the rule text within former 
Rule 1080(c)(ii)(C)(2) and (3). The Exchange desires to conform the 
rule text with Nasdaq affiliated exchanges, where applicable. Today, 
the behavior specified within proposed Rule 1097(c) would be a 
violation of Phlx Rule 707, ``Conduct Inconsistent with Just and 
Equitable Principles of Trade.'' The Exchange proposes to specifically 
note the prohibition within proposed Rule 1097(c) so that members are 
aware when they execute orders they represent as agent on the Exchange 
against orders solicited from members and non-member broker-dealers 
that certain limitations exist. The Exchange believes the proposed rule 
will assist members in understanding the type of behavior that would 
violate Exchange rules when executing agency orders, namely executing 
agency orders to increase its economic gain from trading against the 
order without first giving other trading interest on Phlx an 
opportunity to either trade with the agency order or to trade at the 
execution price when the member was already bidding or offering on the 
book. The Exchange proposes to make clear with this Rule that members 
may not gain by failing to expose orders submitted on an agency basis. 
The Exchange is promoting transparency of orders to prevent members 
from seeking price discovery and potentially preventing price 
improvement which may result from exposing an order.
    The Exchange proposes to amend the lettering to numbering within 
Rule 1097(b) for consistency and update a rule reference. Finally, the 
Exchange proposes to renumber Rule 1097(c) as ``(d)''.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\5\ 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 as 
provided for within the purpose section.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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    The Exchange's proposal to adopt rule text related to solicited 
orders similar to other Nasdaq affiliated markets \6\ will bring 
greater clarity to current limitations that exist when entering orders. 
Proposed Rule 1097(c) is consistent with the Act because it will 
promote just and equitable principles of trade and remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system because it will continue to make clear the requirement to 
expose orders as well as present more specific limitations on order 
entry which would violate Phlx Rules. Specifically, the proposed rule 
will assist members in understanding the type of behavior that would 
violate Exchange rules when executing agency orders, namely executing 
agency orders to increase its economic gain from trading against the 
order without first giving other trading interest on Phlx an 
opportunity to either trade with the agency order or to trade at the 
execution price when the member was already bidding or offering on the 
book. The Exchange proposes to make clear with this Rule that members 
may not gain by failing to expose orders submitted on an agency basis. 
The Exchange is promoting transparency of orders to prevent members 
from seeking price discovery and potentially preventing price 
improvement which may result from exposing an order.
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    \6\ Nasdaq ISE, LLC, Nasdaq GEMX, LLC and Nasdaq MRX, LLC 
Options 3, Section 22(c).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange notes that 
proposed Rule 1097(c) will apply uniformly to all members. Until 
recently rule text describing limitations on solicitation orders was 
described within the Rulebook. Despite the removal of the rule text, 
the behavior was prohibited pursuant to Phlx Rule 707. There is no 
impact to market participants as a result of adding the new rule text, 
rather the new rule text will provide specificity on the type of 
behavior that is prohibited.

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 \7\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of the filing. However, 
Rule 19b-4(f)(6)(iii) \9\ permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. In its filing, Phlx requested that the Commission 
waive the 30-day operative delay so that the Exchange can implement the 
proposed rule change promptly after filing. The Exchange explained that 
the behavior prohibited by the proposed rule change is currently also 
prohibited by Phlx Rule 707, but stated that adding a more specific 
description of the prohibited behavior would provide their members with 
greater transparency regarding this specific limitation on entering 
orders. The Commission also notes that the behavior prohibited by the 
proposed rule change was previously prohibited by Phlx Rule 1080 and 
that the Exchange is simply reinstating the prohibition in a manner 
that conforms to the rule text of affiliate exchanges.
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    \9\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiver of the 30-day operative delay 
is consistent with the protection of investors and the public interest, 
as such waiver will permit the Exchange to promptly update its rules to 
provide greater transparency to its members and to maintain consistency 
with its affiliate exchanges. Accordingly, the Commission hereby waives 
the 30-day operative delay and designates the proposed rule change 
operative upon filing.\10\
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    \10\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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

[[Page 58422]]

the purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     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-2019-46 on the subject line.

Paper Comments

     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-2019-46. 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 (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-Phlx-2019-46 and should be submitted on 
or before November 21, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12) and (59).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-23731 Filed 10-30-19; 8:45 am]
 BILLING CODE 8011-01-P


