[Federal Register Volume 85, Number 20 (Thursday, January 30, 2020)]
[Notices]
[Pages 5525-5531]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01647]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88036; File No. SR-Phlx-2020-02]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Phlx's 
Pricing Schedule

January 24, 2020.
    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 January 14, 2020, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III, below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx's Pricing Schedule. 
Specifically, the Exchange proposes to amend Options 7, Section 4, 
titled ``Multiply Listed Options Fees (Includes options overlying 
equities, ETFs, ETNs and indexes which are Multiply Listed).''
    The Exchange originally filed the proposed pricing changes on 
January 2, 2020 (SR-Phlx-2020-01). On January 14, 2020, the Exchange 
withdrew that filing and submitted this filing.
    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.

[[Page 5526]]

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
    Phlx proposes to amend its Pricing Schedule at Options 7, Section 
4, titled ``Multiply Listed Options Fees (Includes options overlying 
equities, ETFs, ETNs and indexes which are Multiply Listed).'' The 
Exchange proposes to amend pricing for certain strategy caps. The 
Exchange believes the proposed amendments will incentivize market 
participants to transact various options strategies on Phlx to take 
advantage of the opportunity to cap floor option transaction charges 
and lower their costs.
    Today, to qualify for a strategy cap, the buy and sell side of a 
transaction must originate from the Exchange floor.\3\ Today, the 
Exchange offers the following strategy caps:
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    \3\ See Phlx's Pricing Schedule at Options 7, Section 4.

----------------------------------------------------------------------------------------------------------------
  Floor Options Transactions--Multiply
             Listed Options                        Strategy                  Qualification              Cap
----------------------------------------------------------------------------------------------------------------
Specialist, Market Maker, Professional,   dividend, merger and short  executed on the same                $1,500
 Firm and Broker-Dealer.                   stock interest strategies.  trading day in the same
                                                                       options class when such
                                                                       members are trading in
                                                                       their own proprietary
                                                                       accounts..
Specialist, Market Maker, Professional,   reversal and conversion     executed on the same                   700
 Firm and Broker-Dealer.                   strategies.                 trading day in the same
                                                                       options class.
Specialist, Market Maker, Professional,   jelly rolls...............  executed on the same                   700
 Firm and Broker-Dealer.                                               trading day in the same
                                                                       options class.
Specialist, Market Maker, Professional,   box spreads...............  executed on the same                   700
 Firm and Broker-Dealer.                                               trading day in the same
                                                                       options class.
Per member organization.................  dividend, merger, short     combined executions in a            65,000
                                           stock interest, reversal    month when trading in own
                                           and conversion, jelly       proprietary accounts.
                                           roll and box spread
                                           strategies (``Monthly
                                           Strategy Cap'').
----------------------------------------------------------------------------------------------------------------

    NDX and NDXP Options Transactions are excluded from Strategy Cap 
pricing.\4\
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    \4\ Today, reversal and conversion, jelly roll and box spread 
strategy executions are not included in the Monthly Strategy Cap for 
a Firm. Also, all dividend, merger, short stock interest, reversal 
and conversion, jelly roll and box spread strategy executions are 
excluded from the Monthly Market Maker Cap. Specialists and Market 
Makers are subject to a ``Monthly Market Maker Cap'' of $500,000 
which is explained in greater detail within Options 7, Section 4.
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    The Exchange proposes to amend the strategy caps applicable to 
Specialists,\5\ Market Makers,\6\ Professionals,\7\ Firms \8\ and 
Broker-Dealers \9\ with respect to dividend,\10\ merger \11\ and short 
stock interest \12\ strategies.
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    \5\ The term ``Specialist'' applies to transactions for the 
account of a Specialist (as defined in Exchange Rule 1020(a)). A 
Specialist is an Exchange member who is registered as an options 
specialist pursuant to Rule 1020(a). An options Specialist includes 
a Remote Specialist which is defined as an options specialist in one 
or more classes that does not have a physical presence on an 
Exchange floor and is approved by the Exchange pursuant to Rule 501.
    \6\ The term ``Market Maker'' will be utilized to describe fees 
and rebates applicable to Registered Options Traders, Streaming 
Quote Traders (``SQTs'') and Remote Streaming Quote Traders 
(``RSQTs''). RSQTs may also be referred to as Remote Market Markers 
(``RMMs''). The term ``Registered Option Trader'' or ``ROT'' is 
defined in Exchange Rule 1000(b)(57). A ROT includes SQTs and RSQTs 
as well as on and off-floor ROTS. The term ``Streaming Quote 
Trader'' is defined in Exchange Rule 1000(b)(59). The term ``Remote 
Streaming Quote Trader'' is defined in Exchange Rule in 1000(b)(60). 
A Remote Streaming Quote Trader Organization or ``RSQTO,'' which may 
also be referred to as a Remote Market Making Organization 
(``RMO''), is a member organization in good standing that satisfies 
the RSQTO readiness requirements in Rule 507(a).
    \7\ The term ``Professional'' applies to transactions for the 
accounts of Professionals, as defined in Exchange Rule 1000(b)(14) 
means any person or entity that (i) is not a broker or dealer in 
securities, and (ii) places more than 390 orders in listed options 
per day on average during a calendar month for its own beneficial 
account(s).
    \8\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at The Options Clearing Corporation. See Options 7, 
Section 1.
    \9\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category. See Options 7, Section 1.
    \10\ A dividend strategy is defined as transactions done to 
achieve a dividend arbitrage involving the purchase, sale and 
exercise of in-the-money options of the same class, executed the 
first business day prior to the date on which the underlying stock 
goes ex-dividend. See Options 7, Section 4.
    \11\ A merger strategy is defined as transactions done to 
achieve a merger arbitrage involving the purchase, sale and exercise 
of options of the same class and expiration date, executed the first 
business day prior to the date on which shareholders of record are 
required to elect their respective form of consideration, i.e., cash 
or stock. See Options 7, Section 4.
    \12\ A short stock interest strategy is defined as transactions 
done to achieve a short stock interest arbitrage involving the 
purchase, sale and exercise of in-the-money options of the same 
class. See Options 7, Section 4.
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Dividend Strategy
    Today, to qualify for a dividend cap, a Specialist, Market Maker, 
Professional, Firm or Broker-Dealer must execute on the same trading 
day in the same options class when such members are trading in their 
own proprietary accounts. If the qualification is met, Specialists, 
Market Makers, Professionals, Firms and Broker-Dealers floor option 
transaction charges are capped at $1,500. The Exchange proposes to 
amend the qualification for Specialists, Market Makers, Professionals, 
Firms and Broker-Dealers dividend strategies by lowering the cap from 
$1,500 to $1,100 and also amending the qualification for dividend 
strategies. The proposed qualification would be expanded to allow 
Specialists, Market Makers, Professionals, Firms and Broker-Dealers to 
qualify for the cap by executing on the same trading in the same 
options class when (1) such members are trading in their own 
proprietary account, as is the case today, or (2) when transacted on an 
agency basis. If transacted on an agency basis, the daily cap will 
apply per beneficial account. For example, if Firm A transacted $600 of 
qualifying dividend strategies for customer A, $1,500 qualifying 
dividend strategies for customer B and $2,000 qualifying dividend 
strategies for customer C, then customer A would not qualify for a

[[Page 5527]]

dividend strategy cap and customers B and C would each separately cap 
at $1,100 for qualifying dividend strategies pursuant to this proposal. 
The Exchange believes that its proposal will incentivize members to 
transact a greater number of dividend strategies because the cap is 
being lowered from $1,500 to $1,100 and the Exchange is permitting 
members to qualify for the cap by transacting dividend strategies 
either in their proprietary account or on an agency basis.
Merger and Short Stock Interest Strategies
    The Exchange proposes to amend the current merger and short stock 
interest strategy cap which require the strategies to be executed on 
the same trading day in the same options class when such members are 
trading in their own proprietary accounts, to qualify for a $1,500 cap. 
The Exchange proposes to instead require Specialists, Market Makers, 
Professionals, Firms and Broker-Dealers that transact merger and short 
stock interest strategies, along with reversal, conversion, jelly roll 
and box spread strategies, to execute these strategies on the same 
trading day for all options classes in the aggregate when such members 
are trading (1) in their own proprietary accounts, as is the case 
today, or (2) on an agency basis. If transacted on an agency basis, the 
daily cap will apply per beneficial account. The Exchange would offer a 
cap of $1,100 to Specialists, Market Makers, Professionals, Firms and 
Broker-Dealers who qualify for the merger, short stock interest, 
reversal, conversion, jelly roll and box spread strategies, 
collectively. The Exchange believes that its proposal will incentivize 
members to transact a greater number of merger and short stock interest 
strategies because the cap for merger and short stock interest 
strategies is being lowered from $1,500 to $1,100 and the Exchange is 
permitting members to aggregate all options classes to qualify for the 
cap and also permitting members to transact merger, short stock 
interest, reversal, conversion, jelly roll and box spread strategies 
either in their proprietary account or on an agency basis.
Reversal and Conversion, Jelly Roll and Box Spread Strategies
    The Exchange proposes to eliminate the current reversal and 
conversion,\13\ jelly roll \14\ and box spread\15\ strategy caps for 
Specialists, Market Makers, Professionals, Firms and Broker-Dealers 
which require the strategies to be executed on the same trading day in 
the same options class for a cap of $700, respectively, for each 
strategy and adopt strategy caps similar to those proposed for the 
merger and short stock interest strategies. Specifically, Phlx proposes 
to adopt a new strategy cap for Specialists, Market Makers, 
Professionals, Firms and Broker-Dealers for merger, short stock 
interest, reversal and conversion, jelly roll and box spread 
strategies, collectively, which requires that these strategies be 
executed on the same trading day for all options classes in the 
aggregate. Today, members are not limited as to the manner in which 
they may transact reversal and conversion, jelly roll or box spread 
strategies. For clarity, the Exchange proposes to state within the rule 
text that members may transact these strategies in their own 
proprietary accounts or on an agency basis to qualify for the merger, 
short stock interest, reversal and conversion, jelly roll and box 
spread strategy cap. The Exchange proposes to limit members who 
transact merger, short stock interest, reversal and conversion, jelly 
roll or box spread strategies on an agency basis by applying the cap 
per beneficial account similar to the dividend strategy cap. The 
Exchange would offer a cap of $1,100 for qualifying merger, short stock 
interest, reversal and conversion, jelly roll or box spread strategies. 
The Exchange believes that its proposal will incentivize members to 
transact a greater number of reversal and conversion, jelly roll and 
box spread strategies despite the increase in the cap from $700 to 
$1,100 because members may aggregate all options classes and 
collectively aggregate merger, short stock interest, reversal and 
conversion, jelly roll or box spread strategies to qualify for the cap.
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    \13\ Reversal and conversion strategies are transactions that 
employ calls and puts of the same strike price and the underlying 
stock. Reversals are established by combining a short stock position 
with a short put and a long call position that shares the same 
strike and expiration. Conversions employ long positions in the 
underlying stock that accompany long puts and short calls sharing 
the same strike and expiration. See Options 7, Section 4.
    \14\ A jelly roll strategy is defined as transactions created by 
entering into two separate positions simultaneously. One position 
involves buying a put and selling a call with the same strike price 
and expiration. The second position involves selling a put and 
buying a call, with the same strike price, but with a different 
expiration from the first position. See Options 7, Section 4.
    \15\ A box spread strategy is a strategy that synthesizes long 
and short stock positions to create a profit. Specifically, a long 
call and short put at one strike is combined with a short call and 
long put at a different strike to create synthetic long and 
synthetic short stock positions, respectively. See Options 7, 
Section 4.
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    For purposes of the Exhibit 5 rule text, the dividend strategy cap 
will have its own qualification and cap and the remainder of the 
strategies, merger, short stock interest, reversal and conversion, 
jelly roll and box spread, will be grouped into a second category with 
a collective qualification and cap applicable to those strategies. The 
Exchange proposes the below rule text:

----------------------------------------------------------------------------------------------------------------
  Floor Options Transactions--Multiply
             Listed Options                        Strategy                  Qualification              Cap
----------------------------------------------------------------------------------------------------------------
Specialist, Market Maker, Professional,   dividend..................  executed on the same                $1,100
 Firm and Broker-Dealer.                                               trading day in the same
                                                                       options class when such
                                                                       members are trading: (1)
                                                                       In their own proprietary
                                                                       accounts; or (2) on an
                                                                       agency basis. If
                                                                       transacted on an agency
                                                                       basis, the daily cap will
                                                                       apply per beneficial
                                                                       account.
Specialist, Market Maker, Professional,   reversal and conversion,    executed on the same                 1,100
 Firm and Broker-Dealer.                   merger, short stock         trading day for all
                                           interest, jelly roll, and   options classes in the
                                           box spread strategies.      aggregate when such
                                                                       members are trading. (1)
                                                                       In their own proprietary
                                                                       accounts; or (2) on an
                                                                       agency basis. If
                                                                       transacted on an agency
                                                                       basis, the daily cap will
                                                                       apply per beneficial
                                                                       account.

[[Page 5528]]

 
Per member organization.................  dividend, merger, short     combined executions in a            65,000
                                           stock interest, reversal    month when trading in its
                                           and conversion, jelly       own proprietary accounts.
                                           roll and box spread
                                           strategies (``Monthly
                                           Strategy Cap'').
----------------------------------------------------------------------------------------------------------------

    The Exchange is not proposing to amend the $65,000 cap per member 
organization which is currently offered.\16\ The Exchange is proposing 
a technical amendment to add the word ``its'' for the qualifying 
language for a member organization. The amended phrase would state 
``combined executions in a month when trading in its own proprietary 
account.''
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    \16\ Member organization that qualify for a Monthly Strategy Cap 
for a dividend, merger, short stock interest, reversal and 
conversion, jelly roll and box spread strategy by combining 
executions in a month when trading in their own proprietary accounts 
are capped at $65,000 for the month.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\18\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \19\
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    \19\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\20\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\21\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \22\
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    \20\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \21\ See NetCoalition, at 534-535.
    \22\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \23\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
---------------------------------------------------------------------------

    \23\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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Dividend Strategy
    The Exchange's proposal to amend the Specialist, Market Maker, 
Professional, Firm and Broker-Dealer qualification and cap for dividend 
strategies cap is reasonable. The Exchange is lowering the cap from 
$1,500 to $1,100. Also, the proposed qualification would be expanded to 
allow Specialists, Market Makers, Professionals, Firms and Broker-
Dealers to qualify for the cap by executing on the same trading in the 
same options class when such members are trading: (1) In their own 
proprietary account, as is the case today; or (2) on an agency 
basis.\24\ This expanded qualification would allow additional options 
transactions to qualify for the dividend strategy cap. The combination 
of the expansion of the qualification and lowering of the dividend cap 
should encourage members to transact additional dividend strategies on 
Phlx. Finally, the proposal to permit the dividend strategy cap to 
apply to each beneficial account is reasonable. As explained herein, 
members would be permitted to transact dividend strategies in their own 
proprietary account or on an agency basis. To the extent that a member 
is transacting a dividend strategy on an agency basis, the benefit of 
the dividend cap would apply separately to each beneficial account on 
whose behalf the member is executing the dividend strategy. The 
Exchange believes that it is reasonable to apply the cap to each 
beneficial account when the dividend strategy was transacted on an 
agency basis, as compared to the member that transacts a dividend 
strategy for his own proprietary account and therefore may capture the 
benefit of the dividend strategy for all qualifying transactions in 
their proprietary account. When the member transacts the dividend 
strategy on an agency basis, it is for the benefit of a customer. The 
Exchange believes that applying the dividend cap to each of those 
customer accounts separately is reasonable as the dividend cap is 
intended to encourage each member to execute a greater amount of 
dividend strategies. The Exchange believes applying the dividend cap 
per beneficial account when transacted on an agency basis would allow 
the Exchange to incentivize dividend strategies in accordance with the 
order flow that each member executes on the Exchange.
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    \24\ If transacted on an agency basis, the daily cap will apply 
per beneficial account.
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    The Exchange's proposal to amend the qualification for Specialists, 
Market Makers, Professionals, Firms and Broker-Dealers dividend 
strategies by lowering the cap from $1,500 to $1,100 and also amending 
the qualification for dividend strategies is equitable and not unfairly 
discriminatory because all members may qualify for the dividend 
strategy cap provided they transact the requisite amount of dividend 
strategies wherein the buy and sell side of a transaction originated 
from the Exchange floor. The Exchange also believes that it is 
equitable and not unfairly discriminatory to permit a dividend strategy 
cap to apply to each beneficial account when transacted on an agency 
basis. To the extent that a member is transacting a dividend strategy 
on an agency basis, the Exchange would uniformly apply the benefit of 
the dividend cap separately to each beneficial account on whose behalf 
the member is executing the dividend strategy because the transaction 
is for

[[Page 5529]]

the benefit of a customer and not the member.
Merger and Short Stock Strategies
    The Exchange's proposal to amend the current merger and short stock 
interest strategy cap, which requires that the strategies be executed 
on the same trading day in the same options class when such members are 
trading in their own proprietary accounts, to qualify for a $1,500 cap 
is reasonable. The Exchange proposes to expand the current requirement 
to permit Specialists, Market Makers, Professionals, Firms and Broker-
Dealers that transact merger and short stock interest strategies, along 
with reversal, conversion, jelly roll and box spread strategies, to 
execute these strategies on the same trading day for all options 
classes in the aggregate when such members are trading in their own 
proprietary accounts or on an agency basis to qualify. Today, members 
may transact merger and short stock interest strategies in their own 
proprietary account. Adding the ability to transact merger and short 
stock interest on an agency basis to qualify for the cap is proposed 
herein. To the extent that a member is transacting merger or short 
stock interest strategies on an agency basis, or a reversal, 
conversion, jelly roll and box spread strategy, the benefit of the cap 
would apply separately to each beneficial account on whose behalf the 
member is executing the merger, short stock interest, reversal, 
conversion, jelly roll and box spread strategy. The Exchange believes 
that it is reasonable to apply the cap to each beneficial account when 
the merger or short stock interest strategy, along with the reversal, 
conversion, jelly roll and box spread strategy, was transacted on an 
agency basis, as compared to the member that transacts a merger or 
short stock interest strategy, or reversal, conversion, jelly roll and 
box spread strategy, for his own proprietary account and therefore may 
capture the benefit of the merger or short stock interest strategy, or 
reversal, conversion, jelly roll and box spread strategy, for all 
qualifying transactions in their proprietary account. When the member 
transacts the merger or short stock interest strategy on an agency 
basis, or reversal, conversion, jelly roll and box spread strategy, it 
is for the benefit of a customer. The Exchange believes that applying 
the merger, short stock interest, reversal, conversion, jelly roll and 
box spread strategy cap to each of those customer accounts separately 
is reasonable as the merger, short stock interest, reversal, 
conversion, jelly roll and box spread strategy cap is intended to 
encourage each member to execute a greater amount of these strategies. 
The Exchange believes applying the merger, short stock interest, 
reversal, conversion, jelly roll and box spread strategy cap per 
beneficial account when transacted on an agency basis would allow the 
Exchange to incentivize merger and short stock interest strategies in 
accordance with the order flow that each member executes on the 
Exchange.
    The Exchange would also lower the current merger and short stock 
interest cap from $1,500 to $1,100. The Exchange believes that the 
combination of expanding the qualifications to permit members to 
aggregate all options classes and transact on an agency basis, in 
addition to also continuing to trade in their own proprietary account, 
as well as lowering the cap will encourage members to transact a 
greater number of merger and short stock interest strategies.
    The Exchange's proposal to amend the qualification for Specialists, 
Market Makers, Professionals, Firms and Broker-Dealers merger and short 
stock interest strategies by lowering the cap from $1,500 to $1,100 and 
also amending the qualification for these strategies is equitable and 
not unfairly discriminatory because all members may qualify for the 
merger, short stock interest, reversal, conversion, jelly roll and box 
spread strategy cap provided they transact the requisite amount of 
merger, short stock interest, reversal, conversion, jelly roll and box 
spread strategies wherein the buy and sell side of a transaction 
originated from the Exchange floor. The Exchange also believes that it 
is equitable and not unfairly discriminatory to permit a merger, short 
stock interest, reversal, conversion, jelly roll and box spread 
strategy cap to apply to each beneficial account when transacted on an 
agency basis. To the extent that a member is transacting a merger, 
short stock interest, reversal, conversion, jelly roll and box spread 
strategy on an agency basis, the benefit of the merger or short stock 
interest cap would apply separately to each beneficial account on whose 
behalf the member is executing the merger, short stock interest, 
reversal, conversion, jelly roll and box spread strategy because the 
transaction is for the benefit of a customer and not the member.
Reversal and Conversion, Jelly Roll and Box Spread Strategies
    The Exchange's proposal to eliminate the current reversal and 
conversion, jelly roll and box spread strategy caps for Specialists, 
Market Makers, Professionals, Firms and Broker-Dealers and adopt a new 
strategy cap for these strategies, along with the merger and short 
stock interest strategies, which requires that these strategies be 
executed on the same trading day for all options classes in the 
aggregate when such members are trading in their own proprietary 
accounts or transacted on an agency basis to qualify is reasonable. 
Unlike the current qualification for reversal and conversion, jelly 
roll and box spread strategies which requires that these strategies be 
executed on the same trading day in the same options class, the 
proposed qualification would permit the strategies to be executed on 
the same trading day for all options classes in the aggregate, along 
with the merger and short stock interest strategies. Further, the 
Exchange will continue to not limit the manner in which the 
transactions may be executed, either in a member's proprietary account 
or on an agency basis, for the reversal and conversion, jelly roll and 
box spread strategies. Today, there is no limitation as to whether 
reversal and conversion, jelly roll and box spread strategy caps must 
be executed on a proprietary or agency basis. For clarity, the Exchange 
is noting within the rule text that members may transact reversal and 
conversion, jelly roll and box spread strategy caps either in their own 
proprietary accounts or on an agency basis, in conjunction with merger 
and short stock interest strategies. To the extent that a member is 
transacting merger, short stock interest, reversal and conversion, 
jelly roll and box spread strategies on an agency basis, the benefit of 
the cap would apply separately to each beneficial account on whose 
behalf the member is executing the merger, short stock interest, 
reversal and conversion, jelly roll and box spread strategy. The 
Exchange believes that it is reasonable to apply the cap to each 
beneficial account when the merger, short stock interest, reversal and 
conversion, jelly roll and box spread strategies were transacted on an 
agency basis, as compared to the member that transacts a merger, short 
stock interest, reversal and conversion, jelly roll and box spread 
strategy for his own proprietary account and therefore may capture the 
benefit of these strategies for all qualifying transactions in their 
proprietary account. When the member transacts a merger, short stock 
interest, reversal and conversion, jelly roll and box spread strategy 
on an agency basis, it is for the benefit of a customer. The Exchange 
believes that applying the merger, short stock interest, reversal and 
conversion, jelly roll and box spread strategy cap to each of those 
customer

[[Page 5530]]

accounts separately is reasonable as the merger, short stock interest, 
reversal and conversion, jelly roll and box spread strategy cap is 
intended to encourage each member to execute a greater amount of these 
strategies. The Exchange believes applying the merger, short stock 
interest, reversal and conversion, jelly roll and box spread strategy 
cap per beneficial account when transacted on an agency basis would 
allow the Exchange to incentivize reversal and conversion, jelly roll 
and box spread strategies in accordance with the order flow that each 
member executes on the Exchange. Despite the increase in the cap from 
$700 to $1,100 for the reversal and conversion, jelly roll and box 
spread strategies, the Exchange believes that members will be able to 
meet the new qualification because members will be able to aggregate 
all options classes to qualify for the increased cap.
    The Exchange's proposal to eliminate the current reversal and 
conversion, jelly roll and box spread strategy caps for Specialists, 
Market Makers, Professionals, Firms and Broker-Dealers and adopt a new 
strategy cap for these strategies which requires that these strategies 
be executed on the same trading day for all options classes in the 
aggregate, when such members are trading in their own proprietary 
accounts or on an agency basis, in conjunction with the merger and 
short stock interest strategies, is equitable and not unfairly 
discriminatory. All members may qualify for the merger, short stock 
interest, reversal and conversion, jelly roll and box spread strategy 
caps provided they transact the requisite amount of merger, short stock 
interest, reversal and conversion, jelly roll and box spread strategies 
wherein the buy and sell side of a transaction originated from the 
Exchange floor. The Exchange also believes that it is equitable and not 
unfairly discriminatory to permit a merger, short stock interest, 
reversal and conversion, jelly roll and box spread strategy cap to 
apply to each beneficial account when transacted on an agency basis. To 
the extent that a member is transacting a merger, short stock interest, 
reversal and conversion, jelly roll and box spread strategy on an 
agency basis, the benefit of the merger, short stock interest, reversal 
and conversion, jelly roll and box spread cap would apply separately to 
each beneficial account on whose behalf the member is executing these 
strategies because the transaction is for the benefit of a customer and 
not the member.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Inter-market Competition
    The proposal does not impose an undue burden on inter-market 
competition. The Exchange believes its proposal remains competitive 
with other options markets and will offer market participants with 
another choice of where to transact options. The Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem fee levels at a 
particular venue to be excessive, or rebate opportunities available at 
other venues to be more favorable. In such an environment, the Exchange 
must continually adjust its fees to remain competitive with other 
exchanges that have been exempted from compliance with the statutory 
standards applicable to exchanges. Because competitors are free to 
modify their own fees in response, and because market participants may 
readily adjust their order routing practices, the Exchange believes 
that the degree to which fee changes in this market may impose any 
burden on competition is extremely limited.
Intra-market Competition
    The proposed amendments do not impose an undue burden on intra-
market competition. The Exchange's proposal to amend the qualification 
for Specialists, Market Makers, Professionals, Firms and Broker-Dealers 
dividend strategies by lowering the cap from $1,500 to $1,100 and also 
amending the qualification for dividend strategies does not impose an 
undue burden on intra-market competition because all members may 
qualify for the dividend strategy cap provided they transact the 
requisite amount of dividend strategies wherein the buy and sell side 
of a transaction originated from the Exchange floor. The Exchange also 
believes that it does not impose an undue burden on competition to 
permit a dividend cap to apply to each beneficial account when 
transacted on an agency basis. To the extent that a member is 
transacting a dividend strategy on an agency basis, the benefit of the 
dividend cap would apply separately to each beneficial account on whose 
behalf the member is executing the dividend strategy because the 
transaction is for the benefit of a customer and not the member.
    The Exchange's proposal to amend the qualification for Specialists, 
Market Makers, Professionals, Firms and Broker-Dealers merger and short 
stock interest strategies by lowering the cap from $1,500 to $1,100 and 
also amending the qualification for these strategies to allow these 
strategies to be in the aggregate for all options classes and on an 
agency basis, along with reversal and conversion, jelly roll and box 
spread strategies, while continuing to permit members to trade in their 
own proprietary accounts, in conjunction with the reversal and 
conversion, jelly roll and box spread strategies, does not impose an 
undue burden on competition because all members may qualify for the 
merger and short stock interest strategy caps provided they transact 
the requisite amount of merger, short stock interest, reversal and 
conversion, jelly roll and box spread strategies wherein the buy and 
sell side of a transaction originated from the Exchange floor. The 
Exchange also believes that it does not impose an undue burden on 
competition to permit a merger, short stock interest, reversal and 
conversion, jelly roll and box spread cap to apply to each beneficial 
account when transacted on an agency basis. To the extent that a member 
is transacting a merger, short stock interest, reversal and conversion, 
jelly roll and box spread strategy on an agency basis, the benefit of 
the merger, short stock interest, reversal and conversion, jelly roll 
and box spread would apply separately to each beneficial account on 
whose behalf the member is executing these strategies because the 
transaction is for the benefit of a customer and not the member.
    The Exchange's proposal to eliminate the current reversal and 
conversion, jelly roll and box spread strategy caps for Specialists, 
Market Makers, Professionals, Firms and Broker-Dealers and adopt a new 
strategy increased cap of $1,100 for these strategies which requires 
that these strategies be executed on the same trading day for all 
options classes in the aggregate, when such members are trading in 
their own proprietary accounts or on an agency basis, in conjunction 
with merger and short stock interest strategies, does not impose an 
undue burden on competition. All members may qualify for the merger, 
short stock interest, reversal and conversion, jelly roll and box 
spread strategy caps provided they transact the requisite amount of 
merger, short stock interest, reversal and conversion, jelly roll and 
box spread strategies wherein the buy and sell side

[[Page 5531]]

of a transaction originated from the Exchange floor. Further, 
increasing the cap from $700 to $1,100 for the reversal and conversion, 
jelly roll and box spread strategies does not impose an undue burden on 
competition because all members may qualify for the new qualification 
by aggregating all options classes to qualify for the increased cap in 
the merger and short stock interest, reversal and conversion, jelly 
roll and box spread strategies

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\25\
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    \25\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     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-2020-02 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-2020-02. 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-2020-02 and should be submitted on 
or before February 20, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01647 Filed 1-29-20; 8:45 am]
 BILLING CODE 8011-01-P


