[Federal Register Volume 85, Number 237 (Wednesday, December 9, 2020)]
[Notices]
[Pages 79231-79235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26991]



[[Page 79231]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90558; File No. SR-Phlx-2020-51]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq PSX 
Rules 3213, 3301A, and 3301B

December 3, 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 November 20, 2020, 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 Nasdaq PSX Rules 3213, 3301A, and 
3301B, as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, 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
    Presently, the Exchange is making functional enhancements and 
improvements to specific Order Types \3\ and Order Attributes \4\ that 
are currently only available via the RASH Order entry protocol.\5\ 
Specifically, the Exchange will be upgrading the logic and 
implementation of these Order Types and Order Attributes so that the 
features are more streamlined across the Exchange's Systems and order 
entry protocols, and will enable the Exchange to process these Orders 
more quickly and efficiently. Additionally, this System upgrade will 
pave the way for the Exchange to enhance the OUCH Order entry protocol 
\6\ so that Participants may enter such Order Types and Order 
Attributes via OUCH, in addition to the RASH Order entry protocols.\7\ 
The Exchange plans to implement its enhancement of the OUCH protocol 
sequentially, by Order Type and Order Attribute.
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    \3\ An ``Order Type'' is a standardized set of instructions 
associated with an Order that define how it will behave with respect 
to pricing, execution, and/or posting to the Exchange Book when 
submitted to the Exchange. See Rule 3301(e).
    \4\ An ``Order Attribute'' is a further set of variable 
instructions that may be associated with an Order to further define 
how it will behave with respect to pricing, execution, and/or 
posting to the Exchange Book when submitted to the Exchange. See id.
    \5\ The RASH (Routing and Special Handling) Order entry protocol 
is a proprietary protocol that allows members to enter Orders, 
cancel existing Orders and receive executions. RASH allows 
participants to use advanced functionality, including discretion, 
random reserve, pegging and routing. See http://nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/rash_sb.pdf.
    \6\ The OUCH Order entry protocol is a proprietary protocol that 
allows subscribers to quickly enter orders into the System and 
receive executions. OUCH accepts limit Orders from members, and if 
there are matching Orders, they will execute. Non-matching Orders 
are added to the Limit Order Book, a database of available limit 
Orders, where they are matched in price-time priority. OUCH only 
provides a method for members to send Orders and receive status 
updates on those Orders. See https://www.nasdaqtrader.com/Trader.aspx?id=OUCH.
    \7\ The Exchange designed the OUCH protocol to enable members to 
enter Orders quickly into the System. As such, the Exchange 
developed OUCH with simplicity in mind, and it therefore lacks more 
complex order handling capabilities. By contrast, the Exchange 
specifically designed RASH to support advanced functionality, 
including discretion, random reserve, pegging and routing. Once the 
System upgrades occur, then the Exchange intends to propose further 
changes to its Rules to permit participants to utilize OUCH, in 
addition to RASH, to enter order types that require advanced 
functionality.
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    To support and prepare for these upgrades and enhancements, the 
Exchange now proposes to amend its Rules governing Order Types and 
Order Attributes, at Rules 3301A and 3301B, respectively. In 
particular, the Exchange proposes to adjust the current functionality 
of the Market Maker Peg Order \8\ and Reserve Size Order Attribute,\9\ 
as described below, so that they align with how the System, once 
upgraded, will handle these Orders going forward. The Exchange also 
proposes to make several associated clarifications and corrections to 
these Rules, and to Rule 3213, as it prepares to enhance its order 
handling processes.
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    \8\ See Rule 3301A(b)(5).
    \9\ See Rule 3301B(h).
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    The Exchange notes that the Exchange's affiliate, the Nasdaq Stock 
Market, LLC, recently filed a proposal for immediate effectiveness to 
make changes that are similar to those proposed herein.\10\
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    \10\ See Securities Exchange Act Release No. 34-90389 (November 
10, 2020), 85 FR 73304 (November 17, 2020) (SR-NASDAQ-2020-71).
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Changes to Market Maker Peg Order
    A Market Maker Peg Order is an Order Type that exists to help a 
Market Maker to meet its obligation to maintain continuous two-sided 
quotations (the ``Two-Sided Obligation''), as set forth in Rule 
3213(a)(2).\11\ The Exchange proposes to make three changes related to 
the Market Maker Peg Order.
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    \11\ See Rule 3213(a)(2).
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    First, the Exchange proposes to amend Rule 3301A(b)(5) to correct 
the conditions under which a Market Maker Peg Order will be sent back 
to a Participant. Rule 3301A(b)(5) currently states that a Market Maker 
Peg Order will be sent back to the Participant if: (1) Upon entry of 
the Order, the limit price of the Order is not within the Designated 
Percentage; \12\ or (2) after the Order has been posted to the Exchange 
Book, the Reference Price \13\ shifts to reach the Defined Limit,\14\ 
such that the

[[Page 79232]]

Order is subject to re-pricing at the Designated Percentage away from 
the shifted Reference Price, but the limit price of the Order would 
then fall outside of the Defined Limit (which would now be measured by 
the difference between the re-priced Order and the shifted Reference 
Price).\15\
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    \12\ See Rule 3301A(b)(5). The ``Designated Percentage'' is (i) 
8% for securities included in the S&P 500[supreg] Index, Russell 
1000[supreg] Index, and a pilot list of Exchange Traded Products 
(``Tier 1 Securities''); (ii) 28% for all NMS stocks that are not 
Tier 1 Securities with a price equal to or greater than $1 (``Tier 2 
Securities''); (iii) 30% for all NMS stocks that are not Tier 1 
Securities with a price less than $1 (``Tier 3 Securities''), except 
that between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the 
close of trading, the Designated Percentage shall be 20% for Tier 1 
Securities, 28% for Tier 2 Securities, and 30% for Tier 3 
Securities. The Designated Percentage for rights and warrants shall 
be 30%. See Rule 3213(a)(2)(D). As discussed below, the Exchange 
proposes to amend this definition.
    \13\ The ``Reference Price'' for a Market Maker Peg Order to buy 
(sell) is the then-current National Best Bid (National Best Offer) 
(including the Exchange), or if no such National Best Bid or 
National Best Offer, the most recent reported last-sale eligible 
trade from the responsible single plan processor for that day, or if 
none, the previous closing price of the security as adjusted to 
reflect any corporate actions (e.g., dividends or stock splits) in 
the security. See Rule 3301A(b)(5).
    \14\ The term ``Defined Limit'' means 9.5% for Tier 1 
Securities, 29.5% for Tier 2 Securities, and 31.5% for Tier 3 
Securities, except that between 9:30 a.m. and 9:45 a.m. and between 
3:35 p.m. and the close of trading, the Defined Limit shall be 21.5% 
for Tier 1 Securities, 29.5% for Tier 2 Securities, and 31.5% for 
Tier 3 Securities. See Rule 3213(a)(2)(E).
    \15\ See Rule 3301A(b)(5).
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    The Exchange proposes to correct the second of these two conditions 
because it inadvertently allows for a circumstance in which a Market 
Maker Peg Order will be automatically re-priced by the System to a 
limit price that is outside of the Designated Percentage but inside of 
the Defined Limit. Such an outcome is inconsistent with a Market 
Maker's obligations to price or reprice its bid (offer) quotations not 
more than the Designated Percentage away from the then National Best 
Bid (Offer), as set forth in Rule 3213(a)(2).\16\ In order for Rule 
3301A(b)(5) to be consistent with Rule 3213(a)(2), Rule 3301A(b)(5) 
cannot permit the System to re-price a Market Maker Peg Order to a 
limit price that is outside of the Designated Percentage. In any 
circumstance in which the Order would be re-priced to a limit that is 
outside of the Designated Percentage, the Rule must require the System 
to return the Order to the Participant. The Exchange proposes to amend 
Rule 3301A(b)(5) accordingly.\17\
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    \16\ Rule 3213(a)(2) states that for a Market Maker to satisfy 
its Two-Sided Obligation, the Market Maker must price bid (offer) 
interest not more than the Designated Percentage away from the then 
current National Best Bid (Offer) (or if there is no National Best 
Bid (Offer), not more than the Designated Percentage away from the 
last reported sale from the responsible single plan processor). 
Moreover, Rule 3213(a)(2) states that if the National Best Bid 
(Offer) or reported sale increases (decreases) to a level that would 
cause the bid (offer) interest of the Two-Sided Obligation to be 
more than the Defined Limit away from the National Best Bid (offer) 
or last reported sale, or if the bid (offer) is executed or 
cancelled, then the Market Maker must enter new bid (offer) interest 
at a price not more than the Designated Percentage away from the 
then current National Best Bid (Offer) or last reported sale.
    \17\ The Exchange also proposes to amend this condition to state 
that repricing will occur when the difference between the displayed 
price of a Market Maker Peg Order and the Reference Price exceeds, 
rather than merely reaches, the Defined Limit. Currently, the Rule 
uses the term ``reaches,'' but this is inconsistent with the example 
that follows it (``In the foregoing example, if the Defined Limit is 
9.5% and the National Best Bid increases to $10.17, such that the 
displayed price of the Market Maker Peg Order would be more than 
9.5% away, the Order will be repriced to $9.36, or 8% away from the 
National Best Bid.'') (emphasis added). The Exchange proposes to 
reconcile this inconsistency in a manner that reflects the stated 
example as well as the manner in which the Exchange's System 
presently applies the Rule. It would also render the Rule consistent 
with Market Maker obligations under Rule 3213.
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    Second, the Exchange proposes to amend Rule 3301A(b)(5) to no 
longer allow entry of a Market Maker Peg Order entered with an offset. 
The Rule presently permits a Market Maker to enter a Market Maker Peg 
Order with a more aggressive offset than the Designated Percentage, but 
not a less aggressive offset. The Exchange has reviewed usage of 
offsets with Market Maker Peg Orders and found that no Market Maker 
assigned an offset to their Market Maker Peg Orders since January 2019. 
The Exchange does not believe that there is value in keeping offsets as 
an option for Market Maker Peg Orders. Eliminating this option will 
also facilitate the System upgrades and ease the import of RASH 
functionality to OUCH. Accordingly, the Exchange proposes to delete 
text from Rule 3301A(b)(5)(A) that discusses offsets and replace it 
with text stating that Market Maker Peg Orders entered with pegging 
offsets will not be accepted. The Exchange also makes conforming 
changes to Rule 3301A(b)(5)(B) where the text refers to offsets.
    Third, the Exchange proposes to amend Rule 3301A(b)(5) to account 
for a scenario where, after entry of a Market Maker Peg Order whose 
initial displayed price was set with reference to the National Best Bid 
or Offer, the National Best Bid or Offer shifts such that the displayed 
price of the Order to buy (sell) is equal to or greater (less than) the 
National Best Bid (Offer). The Exchange proposes to state that the 
Exchange will not reprice the Market Maker Peg Order in this scenario 
until a new Reference Price is established that is more aggressive than 
the displayed price of the Order. By specifying that the Exchange will 
not reprice Market Maker Peg Orders in this scenario until a new, more 
aggressive Reference Price is established, the Exchange will ensure 
that it does not engage in a potential cycle of pegging against a 
Reference Price established by the Order itself.
Change to Rule 3213
    Next, the Exchange proposes to clarify the definitions of 
``Designated Percentage'' in Rule 3213(a)(2)(D) and ``Defined Limit'' 
in Rule 3213(a)(2)(E), which presently are as follows:
    (D) For purposes of this Rule, the ``Designated Percentage'' shall 
be: (i) 8% for securities included in the S&P 500[supreg] Index, 
Russell 1000[supreg] Index, and a pilot list of Exchange Traded 
Products (``Tier 1 Securities''); (ii) 28% for all NMS stocks that are 
not Tier 1 Securities with a price equal to or greater than $1 (``Tier 
2 Securities''); (iii) 30% for all NMS stocks that are not Tier 1 
Securities with a price less than $1 (``Tier 3 Securities''), except 
that between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the 
close of trading, the Designated Percentage shall be 20% for Tier 1 
Securities, 28% for Tier 2 Securities, and 30% for Tier 3 Securities. 
The Designated Percentage for rights and warrants shall be 30%.
    (E) For purposes of this Rule, the ``Defined Limit'' shall be 9.5% 
for Tier 1 Securities, 29.5% for Tier 2 Securities, and 31.5% for Tier 
3 Securities, except that between 9:30 a.m. and 9:45 a.m. and between 
3:35 p.m. and the close of trading, the Defined Limit shall be 21.5% 
for Tier 1 Securities, 29.5% for Tier 2 Securities, and 31.5% for Tier 
3 Securities.
    The Exchange is concerned that these two provisions could be 
misinterpreted to suggest that prior to 9:30 a.m., the Exchange applies 
a narrower Designated Percentage and Defined Limit than it does between 
9:30 and 9:45 a.m., under the same conditions. In fact, the Exchange 
applies the same wider Designated Percentage and Defined Limit prior to 
9:30 a.m. as it does between 9:30 and 9:45 a.m. To avoid confusion (and 
without changing existing market maker obligations), the Exchange 
therefore proposes to clarify both of these provisions of Rule 
3213(a)(2) to state that ``prior to 9:45 a.m.'' and between 3:35 p.m. 
and the close of trading, the Designated Percentage and Defined Limit 
(including for Market Maker Peg Orders) shall be as stated. 
Furthermore, throughout Rule 3213(a)(2)(D), in defining the term 
``Designated Percentage,'' the Exchange proposes to replace references 
to Tier 1, 2, and 3 NMS Securities with the following: (i) The 
Designated Percentage shall be 8% for all Tier 1 NMS Stocks under the 
LULD Plan,\18\ 28% for all Tier 2 NMS Stocks under the LULD Plan with a 
price equal to or greater than $1), and 30% for all Tier 2 NMS Stocks 
under the LULD Plan with a price less than $1, except that prior to 
9:45 a.m. and between 3:35 p.m. and the close of trading, the 
Designated Percentage shall be: (i) 20% for Tier 1 NMS Stocks under the 
LULD Plan; (ii) 28% for all Tier 2 NMS Stocks under the LULD Plan with 
a price equal to or greater than $1; and (iii) 30% for all Tier 2 NMS 
Stocks under the LULD Plan with a price less than $1. Similarly, in 
Rule 3213(a)(2)(E),

[[Page 79233]]

in defining the term ``Defined Limit,'' the Exchange proposes to 
replace references to securities subject to Rule 4120(a)(11)(A), (B), 
and (C) [sic] with the following: (i) 9.5% for all Tier 1 NMS Stocks 
under the LULD Plan; (ii) 29.5% for all Tier 2 NMS Stocks under the 
LULD Plan with a price equal to or greater than $1; and (iii) 31.5% for 
all Tier 2 NMS Stocks under the LULD Plan with a price less than $1, 
except that prior to 9:45 a.m. and between 3:35 p.m. and the close of 
trading, the Defined Limit shall be: (i) 21.5% all Tier 1 NMS Stocks 
under the LULD Plan; (ii) 29.5% for all Tier 2 NMS Stocks under the 
LULD Plan with a price equal to or greater than $1; and (iii) 31.5% for 
all Tier 2 NMS Stocks under the LULD Plan with a price less than $1. 
The Exchange proposes this change because the existing references are 
obsolete.
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    \18\ Tier 1 NMS Stocks under the LULD Plan comprise all NMS 
Stocks included in the S&P 500[supreg] Index, Russell 1000[supreg] 
Index, and a list of Exchange Traded Products identified as Schedule 
1 to the Plan to Address Extraordinary Market Volatility Submitted 
to the Securities and Exchange Commission Pursuant to Rule 608 of 
Regulation NMS Under the Securities Exchange Act of 1934 (the ``LULD 
Plan'').
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    The Exchange also proposes to add to Rule 3213(a)(2)(E) the fact 
that the Defined Limit for rights and warrants shall be 31.5%. The 
Exchange mistakenly omitted the Defined Limit for such securities from 
prior filings.\19\
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    \19\ See Securities Exchange Act Release No. 34-69194 (March 20, 
2013), 78 FR 18386 (March 26, 2013) (SR-Phlx-2013-24).
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Changes to Reserve Size
    As set forth in Rule 3301B(h), ``Reserve Size'' is an Order 
Attribute that permits a Participant to stipulate that an Order Type 
that is Displayed may have its displayed size replenished from 
additional non-displayed size.\20\ The Exchange proposes three changes 
to the rule text describing the Reserve Size Order Attribute.
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    \20\ An Order with Reserve Size may be referred to as a 
``Reserve Order.''
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    First, the Exchange proposes to amend a paragraph of Rule 3301B(h) 
which begins as follows: ``Whenever a Participant enters an Order with 
Reserve Size, PSX will process the Order as two Orders: A Displayed 
Order (with the characteristics of its selected Order Type) and a Non-
Displayed Order. Upon entry, the full size of each such Order will be 
processed for potential execution in accordance with the parameters 
applicable to the Order Type.'' The Exchange proposes to amend this 
language because it does not describe precisely how the Exchange 
processes Orders with Reserve Size. The Exchange proposes to state 
instead that whenever a Participant enters an Order with Reserve Size, 
the full size of the Order will be presented for potential execution in 
compliance with Regulation NMS and that thereafter, unexecuted portions 
of the Order will be processed as two Orders: A Displayed Order (with 
the characteristics of its selected Order Type) and a Non-Displayed 
Order. The Exchange also proposes to delete the following sentence: 
``Upon entry, the full size of each such Order will be processed for 
potential execution in accordance with the parameters applicable to the 
Order Type.'' The proposed re-formulation reflects that it is possible 
that the Order with Reserve Size will be executed immediately in full 
and without needing to place unexecuted portions of the Order in 
reserve. Furthermore, it clarifies that the System will present the 
Order for immediate execution (provided that it does not trade through 
a protected quotation, in accordance with Regulation NMS) without 
complying with underlying characteristics of the Order Type that might 
otherwise require an adjustment to the price of the Order before the 
System attempts to execute it.\21\ The proposed language is consistent 
with the following example set forth in the existing rule text:
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    \21\ This clarification is needed due to the fact that pursuant 
to Rule 3301A(b)(2)(A), a Price to Display Order would automatically 
reprice upon entry if its entered limit price would lock or cross a 
protected quotation, = .

    For example, a Participant might enter a Price to Display Order 
with 200 shares displayed and an additional 3,000 shares non-
displayed. Upon entry, the Order would attempt to execute against 
available liquidity on the PSX Book, up to 3,200 shares. Thereafter, 
unexecuted portions of the Order would post to the PSX Book as a 
Displayed Price to Display Order and a Non-Displayed Order; 
provided, however, that if the remaining total size is less than the 
display size stipulated by the Participant, the Displayed Order will 
post without Reserve Size. Thus, if 3,050 shares executed upon 
entry, the Price to Display Order would post with a size of 150 
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shares and no Reserve Size.

The proposed language eliminates confusion that might otherwise arise 
from perceived inconsistencies between the above example and existing 
rule text. Again, the existing rule text states that whenever a 
participant enters an Order with Reserve Size, the System will process 
the Reserve Order as two orders upon entry and also, upon entry, the 
full size of an Order with Reserve will be presented for potential 
execution in accordance with the parameters applicable to the Order 
Type.
    When there is, in fact, an unexecuted portion of the Order, then 
the Exchange will continue to process the unexecuted portion as two 
Orders: A Displayed Order and a Non-Displayed Order.
    Second, the Exchange proposes to delete text from Rule 3301B(h) 
which states that ``[a] Participant may stipulate that the Displayed 
Order should be replenished to its original size.'' The Exchange 
proposes to delete this text because it is redundant of text elsewhere 
in the Rule that describes how a Displayed Order with Reserve Size 
replenishes.\22\
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    \22\ The Exchange proposes to clarify a portion of Rule 3301B(h) 
which states that if an execution against a Displayed Order causes 
its size to decrease below a normal unit of trading, another 
Displayed Order will be entered at the ``level'' stipulated by the 
Participant while the size of the Non-Displayed Order will be 
reduced by the same amount. In describing the entry of the new 
Displayed Order in this instance, the Exchange proposes to replace 
the word ``level'' with ``limit price and size,'' which is a more 
precise phrase.
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    Third, the Exchange proposes to amend text from Rule 3301B(h) that 
allows the original and subsequent displayed sizes of the Displayed 
Order to be amounts randomly determined based upon factors they select 
(``Random Reserve''). The amendments also state that when Participants 
stipulate use of a Random Reserve, they would select a nominal (rather 
than a ``theoretical'') displayed size, which is a more precise term. 
Furthermore, the amendment adds a reminder that the actual displayed 
size will be randomly determined by the System from a range of ``normal 
trading units.'' Lastly, the amendments include other changes that do 
not change the substantive meaning of the text, but simply improve its 
readability.
    The Exchange intends to implement the foregoing changes during the 
First Quarter of 2021. The Exchange will issue an Equity Trader Alert 
at least 30 days in advance of implementing the changes.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\23\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\24\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that it is consistent with the Act to amend 
Rule 3301A(b)(5), which describes the Market Maker Peg Order Type, to 
correct one of the stated conditions under which a Market Maker Peg 
Order will be sent back to a Participant. As presently stated, this 
condition provides for Market Maker Peg Orders to be repriced 
automatically at limit prices that are within the Defined Limit, but 
outside of the Designated Percentage, which places

[[Page 79234]]

them in conflict with Rule 3213(a)(2), which requires Market Makers to 
price and re-price bid and offer interest at the Designated Percentage. 
It is just and in the interests of the investors and the public for the 
Exchange to correct Rule 3301A(b)(5) to ensure that Market Maker Peg 
Orders operate in a manner that helps rather than hinders Market Makers 
from complying with Rule 3213.
    It is also consistent with the Act for the Exchange to amend Rule 
3301A(b)(5) to clarify that repricing will occur when the difference 
between the displayed price of a Market Maker Peg Order and the 
Reference Price ``exceeds,'' rather than merely ``reaches,'' the 
Defined Limit, as the Rule states presently. The proposed change would 
ensure that the Rule text is internally consistent, as the example set 
forth in the text suggests that the Rule should be read to mean 
exceeds. It would also render the Rule consistent with Market Maker 
obligations under Rule 3213. The Exchange believes that it is in the 
interest of investors and the public to eliminate such inconsistencies.
    Meanwhile, the Exchange believes that it is consistent with the Act 
to eliminate the option for Participants to enter offsets from the 
Market Maker Peg Orders. The proposal is consistent with the Act 
because Market Makers do not actively employ such offsets. As noted 
above, the Exchange has reviewed usage of offsets with Market Maker Peg 
Orders and found that no Market Maker has assigned an offset with their 
Market Maker Peg Orders since January 2019. Moreover, elimination of 
the option to enter offsets would simplify the Exchange's efforts to 
improve processing.
    The Exchange believes that it is consistent with the Act to clarify 
Rule 3301A(b)(5) so that it specifies how the System will react when, 
after entry of a Market Maker Peg Order whose initial displayed price 
was set with reference to the National Best Bid or Offer, the National 
Best Bid or Offer shifts such that the displayed price of the Order to 
buy (sell) is equal to or greater (less) than the National Best Bid 
(National Best Offer). Specifically, the Exchange believes that it is 
just and in the interests of investors to specify that the Exchange 
will not reprice Market Maker Peg Orders in this scenario until a new, 
more aggressive Reference Price is established, because doing so 
ensures that the Exchange will not engage in a potential cycle of 
pegging against a Reference Price established by the Order itself.
    The Exchange's proposal to amend the definitions of ``Designated 
Percentage'' and ``Defined Limit,'' as set forth in Rule 3213(a)(2)(D) 
and (E), is consistent with the Act because the amendment is necessary 
to correct obsolete references and to avoid confusion about which 
particular percentage or limit will apply to orders prior to 9:30 a.m. 
The proposal clarifies the Rule by stating expressly that the same sets 
of bands that apply between 9:30-9:45 a.m. and between 3:35 p.m. and 
the close of trading also apply prior to 9:30 a.m. The proposal also 
specifies a Defined Limit for rights and warrants, which was mistakenly 
omitted from prior filings and which relates to the Designated 
Percentage for rights and warrants, which is set forth already at Rule 
3213(a)(2)(D).
    It is also consistent with the Act to amend Rule 3301B(h) to 
clarify that when a Participant enters an Order with Reserve Size, the 
full size of the Order will first be presented for potential execution 
in compliance with Regulation NMS, and only if there is an unexecuted 
portion of the Order will it be processed as a Displayed Order and a 
Non-Displayed Order. This clarification describes the behavior of the 
System more precisely than the existing Rule language. It also reflects 
the possibility that the Order with Reserve Size will be executed 
immediately in full and without needing to place unexecuted portions of 
the Order in reserve. Furthermore, it eliminates inconsistency between 
rule text which presently suggests that the System will process the 
Order with Reserve Size for potential immediate execution consistent 
with the characteristics of its underlying Order Type, and an example 
in the rule text in which the Exchange provides that the System will 
process the Order for potential immediate execution regardless of the 
parameters applicable to the Order Type. The proposed amendment will 
resolve this inconsistency by making clear that the System will present 
an order for potential immediate execution regardless of the 
characteristics of the underlying Order Type, with the caveat that the 
Order will not trade-through a protected quotation as required by 
Regulation NMS.
    It is consistent with the Act to amend Rule 3301B(h) to state that 
when participants stipulate use of a Random Reserve, they would select 
a ``nominal''--rather than a ``theoretical'' displayed size. The 
proposed term ``nominal'' is more precise than the existing Rule text. 
Improving the precision of the Exchange's Rules improves the ability of 
the public and investors to comprehend them and account for and comply 
with them. For similar reasons, proposed non-substantive amendments to 
other text in Rule 3301B(h) are consistent with the Act because they 
would improve the readability of the Rule.
    Finally, the Exchange believes that various proposed non-
substantive clarifications and corrections to the text of the Rule will 
improve its readability, which is in the interests of market 
participants and investors, and would promote a more orderly market.

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

    The Exchange does not believe that its proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. As a general principle, the 
proposed changes are reflective of the significant competition among 
exchanges and non-exchange venues for order flow. In this regard, 
proposed changes that facilitate enhancements to the Exchange's System 
and order entry protocols as well as those that clarify and correct the 
Exchange's Rules regarding its Order Types and Attributes, are pro-
competitive because they bolster the efficiency, integrity, and overall 
attractiveness of the Exchange in an absolute sense and relative to its 
peers.
    Moreover, none of the proposed changes will burden intra-market 
competition among various Exchange Participants. Proposed changes to 
the Market Maker Peg Order Type, at Rule 3301A(b)(5), and to Rule 3213, 
will apply equally to all Market Makers. Market Makers will experience 
no competitive impact from proposals to eliminate their ability to use 
offsets with Market Maker Peg Orders because Market Makers do not 
actually utilize offsets. Likewise, Market Makers will feel no 
competitive effects from proposed corrections and clarifications to the 
manner in which the Exchange prices and re-prices their Market Maker 
Peg Orders, except that the changes will benefit Market Makers by 
ensuring that the Exchange always processes those Orders in a manner 
that complies with their Market Maker pricing obligations under Rule 
3213. Proposed clarifications to the Reserve Order Attribute Rule, at 
Rule 3301B(h), will have no substantive impact on participants.
    Proposed changes to Rule 3213 are intended to correct inadvertent 
errors and should have no competitive impact on Market Makers. Proposed 
clarifications and amendments to the Reserve Order Attribute Rule, at 
Rule 3301B(h), are intended to improve the

[[Page 79235]]

precision and readability of the Rule text and will not have any 
competitive impact on participants.

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) of the Act \25\ and Rule 19b-
4(f)(6) thereunder.\26\
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change 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-2020-51 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-2020-51. 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-2020-51 and should be submitted on 
or before December 30, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26991 Filed 12-8-20; 8:45 am]
BILLING CODE 8011-01-P


