[Federal Register Volume 86, Number 26 (Wednesday, February 10, 2021)]
[Notices]
[Pages 8955-8966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02710]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91060; File No. SR-Phlx-2021-05]


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

February 4, 2021.
    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 26, 2021, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``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 Rules at Options 1, Section 1, 
``Applicability, Definitions and References''; Options 2, Section 4, 
``Obligations of Market Makers''; Options 2, Section 6, ``Market Maker 
Orders''; Options 3, Section 6, ``Firm Quotations''; Options 3, Section 
7, ``Types of Orders and Order and Quote Protocols''; Options 3, 
Section 10, ``Electronic Execution Priority and Processing in the 
System''; Options 3, Section 13, ``Price Improvement XL (``PIXL'')''; 
Options 3, Section 15, ``Simple Order Risk Protections''; Options 3, 
Section 23, ``Data Feeds and Trade Information''; Options 5, Section 4, 
``Order Routing''; Options 8, Section 2, ``Definitions''; and Options 
8, Section 32, ``Types of Floor-Based (Non-System) Orders''.
    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

[[Page 8956]]

proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant aspects of such statements.

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

1. Purpose
    The Exchange proposes to amend Phlx Rules at Options 1, Section 1, 
``Applicability, Definitions and References''; Options 2, Section 4, 
``Obligations of Market Makers''; Options 2, Section 6, ``Market Maker 
Orders''; Options 3, Section 6, ``Firm Quotations''; Options 3, Section 
7, ``Types of Orders and Order and Quote Protocols''; Options 3, 
Section 10, ``Electronic Execution Priority and Processing in the 
System''; Options 3, Section 13, ``Price Improvement XL (``PIXL'')''; 
Options 3, Section 15, ``Simple Order Risk Protections''; Options 3, 
Section 23, ``Data Feeds and Trade Information''; Options 5, Section 4, 
``Order Routing''; Options 8, Section 2, ``Definitions''; and Options 
8, Section 32, ``Types of Floor-Based (Non-System) Orders''. Each 
change is described below.
Options 1, Section 1
    The Exchange proposes to update the cross reference within Options 
1, Section 1(b)(46) to Options 1, Section 1(b)(45) and make other non-
substantive grammatical amendments within Options 1, Section 1.
Options 2, Section 4
    The Exchange proposes to add a title to Options 2, Section 4(c)(1) 
to make clear that this section applies intra-day. The Exchange 
proposes to add the title, ``Intra-Day Bid/Ask Differentials (Quote 
Spread Parameters).''
    Additionally, the Exchange proposes to remove the phrase, ``or its 
decimal equivalent rounded down to the nearest minimum increment'' 
within Options 2, Section 4(c)(1). This is a non-substantive amendment 
because the bid/ask differentials may be as wide as the spread between 
the national best bid and offer in the underlying security, if rounding 
up it would cause the spread to be wider than the underlying spread, so 
rounding is superfluous.
Options 2, Section 6
    The Exchange previously filed a rule change \3\ to replace the term 
``Registered Options Traders'' or ``ROTs'' with ``Market Makers'' and 
replace ``Specialists'' with ``Lead Market Makers.'' The Exchange is 
updating this rule to conform to those prior changes.
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    \3\ See Securities Exchange Act Release No. 88213 (February 14, 
2020), 85 FR 9859 (February 20, 2020) (SR-Phlx-2020-03) (``Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To 
Relocate Rules From Its Current Rulebook Into Its New Rulebook 
Shell'').
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Options 3, Section 6
    The Exchange proposes to amend Options 3, Section 6 to re-number 
and re-letter the rule to conform to Phlx's rule structure, update rule 
citations, and add spacing where necessary.
    The Exchange also proposes to amend current Options 3, Section 
6(a)(ii)(B)(2)(g)(iv)(A)(4), which provides,
    (A) If the Best Price is the Exchange's next available price . . .

and is also equal to both the ABBO price and the Acceptable Range 
price, any remainder order volume from the execution on the Exchange 
will be routed away, and if after such routing, there still remain 
unexecuted contracts, the remainder will be posted on the Phlx at the 
Acceptable Range price for a period not to exceed ten seconds, and then 
cancelled after this time has elapsed, unless the member that submitted 
the original order has instructed the Exchange in writing to re-enter 
the remaining size, in which case the remaining size will be 
automatically submitted as a new order. During this up to ten second 
period, the System will disseminate, on the opposite side of the market 
from remaining unexecuted contracts: (i) A non-firm bid for the price 
and size of the next available bid(s) on the Exchange if the remaining 
size is a seller, or (ii) a non-firm offer for the price and size of 
the next available offer(s) on the Exchange if the remaining size is a 
buyer.

    The Exchange proposes to amend the sentence which provides,

    If the Best Price is the Exchange's next available price . . . 
and is also equal to both the ABBO price and the Acceptable Trade 
Range price, any remainder order volume from the execution on the 
Exchange will be routed away, and if after such routing, there still 
remain unexecuted contracts, the remainder will be posted on the 
Phlx at the Acceptable Trade Range price for a period not to exceed 
ten seconds, and then cancelled after this time has elapsed, unless 
the member that submitted the original order has instructed the 
Exchange in writing to re-enter the remaining size, in which case 
the remaining size will be automatically submitted as a new order.

    This statement does not represent the current function of the 
System. The Exchange proposes to amend the rule text to properly 
represent system functionality. Today, in this scenario, if the 
Exchange's next available price is the ABBO price (which equates to the 
Acceptable Trade Range price) after the remaining order has routed away 
and executed with quotes at the away exchange and the unexecuted 
contracts are returned to the Exchange, the incoming order may post at 
its original limit price, with a new timestamp and would be subject to 
certain entry checks. The Exchange proposes to amend the sentence to 
correctly provide,

    If the Best Price is the Exchange's next available price . . . 
and is also equal to both the ABBO price and the Acceptable Trade 
Range price, any remainder order volume from the execution on the 
Exchange will be routed away, and if after such routing, there still 
remain unexecuted contracts, the unexecuted contracts would post to 
the Order Book at their Limit Order price, with a new timestamp, 
subject to order entry price checks.

    The order entry checks are applied for new orders when they post to 
the Order Book as provided for in Phlx Options 3, Section 5(a)(4). The 
Exchange filed prior rule changes \4\ which established Phlx's System 
as it exists today. As the new System was amended through a series of 
rule changes, certain technology was automated to prevent any manual 
intervention, and provide System-enforced functionalities. The Exchange 
believes that this process was modified with certain enhancements which 
further automated the System. The proposed amendment provides the 
market participant with greater certainty as to the order. Further, the 
Exchange offers market participants various options with respect to 
routing. A market participant may elect to route as a FIND or SRCH 
Order which provides the Exchange with instructions as to how an order 
may route anew once posted on the Order Book.\5\ A market participant 
may also choose to submit an order with varying TIF options (e.g., DAY, 
IOC, GTC) that provide the Exchange instructions as to how to either 
post an order on the Order Book

[[Page 8957]]

or cancel back an order after exhausting its potential to trade upon 
entry.
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    \4\ See Securities Exchange Act Release Nos. 50100 (July 27, 
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59); 55498 (March 
20, 2007, 72 FR 14318 (March 27, 2007) (SR-Phlx-2007-15); 59995 (May 
28, 2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32); and 72152 
(May 12, 2014), 79 FR 28561 (May 16, 2014) (SR-Phlx-2014-32).
    \5\ Options 5, Section 4 describes the various options routing 
functionalities available on Phlx.
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    The final sentence of Options 3, Section 
6(a)(ii)(B)(2)(g)(iv)(A)(4),\6\ which is being removed, is no longer 
relevant in this scenario as the ten second period does not exist.
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    \6\ During this up to ten second period, the System will 
disseminate, on the opposite side of the market from remaining 
unexecuted contracts: (i) A non-firm bid for the price and size of 
the next available bid(s) on the Exchange if the remaining size is a 
seller, or (ii) a non-firm offer for the price and size of the next 
available offer(s) on the Exchange if the remaining size is a buyer.
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    The Exchange proposes to amend current Options 3, Section 
6(a)(ii)(B)(4)(a), which states, ``If there are no offers both on the 
Exchange and on away markets in the affected series, Market Orders to 
buy in the affected series will be cancelled immediately, and an 
electronic report of such cancellation will be transmitted to the 
sender.'' The Exchange proposes to replace ``cancelled immediately'' 
with the term ``rejected'' to conform the rule text to conform to other 
uses of the word rejected in the Rulebook. The System would reject and 
not accept the order in this case.
    Finally, the Exchange proposes to amend Supplementary Material .02 
to Options 3, Section 6 which states, ``In the event that an SQT, RSQT, 
and/or Lead Market Maker's electronically submitted quotations interact 
with the electronically submitted quotations of other SQTs, RSQTs and/
or the Lead Market Maker, resulting in the dissemination of a 
``locked'' quotation (e.g., $1.00 bid-1.00 offer), the locked 
quotations will automatically execute against each other in accordance 
with the allocation algorithm set forth in Options 3, Section 10.'' The 
phrase, ``resulting in the dissemination of a ``locked'' quotation 
(e.g., $1.00 bid-1.00 offer)'' is out of date as under the current 
Options Order Protection and Locked/Crossed Market Plan,\7\ the 
Exchange would not disseminate a locked quotation. Rather, the Exchange 
would reprice its quote as described within Options 3, Section 4(b)(6). 
As a result, the Exchange proposes to delete this rule text. The 
Exchange believes that this rule text existed prior to the Locked and 
Crossed Market Plan and was not updated when the new plan came into 
existence.
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    \7\ See Securities Exchange Act Release No. 60405 (July 30, 
2009), 74 FR 39362 (August 6, 2009) (File No. 4-546).
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Options 3, Section 7
    Similar to the changes proposed within Options 2, Section 6, the 
Exchange proposes to replace the term ``Registered Options Traders'' or 
``ROTs'' with ``Market Makers'' and replace ``Specialists'' with ``Lead 
Market Makers'' within Options 3, Section 7 to conform to the remainder 
of the Rulebook.\8\
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    \8\ See note 3 above.
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    The Exchange proposes to amend All-or-None Orders within Options 3, 
Section 7(b)(5) to add more language to the description of an All-or-
None Order to bring greater transparency to this order type. Today, the 
Exchange provides that All-or-None Orders are non-displayed and non-
routable. To expand on this notion, the Exchange proposes to amend the 
sentence to provide, ``All-or-None Orders are non-routable. The 
Exchange does not disseminate bids or offers of All-or-None Orders to 
OPRA and the Top of PHLX Options feed, however All-or-None Orders are 
displayed in the PHLX Orders \9\ and PHLX Depth of Book \10\ feed.'' 
This additional rule text will make clear that these order types are 
not disseminated on OPRA or the Top of PHLX Options feed, however All-
or-None Orders are displayed in the PHLX Orders and PHLX Depth of Book 
feed.\11\ Further, the Exchange proposes to add, ``If an All-or-None 
Order contingency cannot be met, the All-or-None Order would be 
bypassed until such time as the contingency could be met.'' This 
language is intended to make clear that an All-or-None Order will not 
cause other orders to queue until such time as the All-or-None Order 
may execute. Rather, the All-or-None Order will rest on the Order Book 
until the contingency will be met, at which time that Public Customer 
All-or-None Order will have priority over other orders on the Book. The 
Exchange believes the addition of this rule text will bring greater 
transparency to the current System handling of All-or-None Orders.
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    \9\ See Phlx Options 3, Section 23(a)(2). PHLX Orders is a real-
time full Limit Order book data feed that provides pricing 
information for orders on the PHLX Limit Order book. PHLX Orders is 
currently provided as part of the TOPO Plus Orders data product. 
PHLX Orders provides real-time information to enable users to keep 
track of the single order book(s), single and Complex Orders, and 
Complex Order Live Auction (``COLA'') for all symbols listed on 
Phlx. The data provided for each options series includes the symbols 
(series and underlying security), put or call indicator, expiration 
date, the strike price of the series, leg information on complex 
strategies and whether the option series is available for trading on 
Phlx and identifies if the series is available for closing 
transactions only.
    \10\ See Phlx Options 3, Section 23(a)(3). PHLX Depth of Market 
is a data product that provides: (i) Order and quotation information 
for individual quotes and orders on the PHLX book; (ii) last sale 
information for trades executed on Phlx; (iii) auction; and (iv) an 
Imbalance Message which includes the symbol, side of the market, 
size of matched contracts, size of the imbalance, and price of the 
affected series. The data provided for each options series includes 
the symbols (series and underlying security), put or call indicator, 
expiration date, the strike price of the series, and whether the 
option series is available for trading on Phlx and identifies if the 
series is available for closing transactions only.
    \11\ The Exchange discusses these data feeds in more detail 
below.
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    The Exchange proposes to amend Options 3, Section 7(c)(3), 
``Opening Only,'' to correct incorrect rule text, and also add a 
clarifying sentence. Today, Options 3, Section 7(c)(3) provides, ``An 
Opening Only (``OPG'') order is entered with a Time in Force (``TIF'') 
of ``OPG''. This order can only be executed in the Opening Process 
pursuant to Options 3, Section 8. This order type is not subject to any 
protections listed in Options 3, Section 15, except for Automated 
Quotation Adjustments.'' The Exchange proposes to remove the phrase 
``except for Automated Quotation Adjustments'' because, today, an OPG 
order is not subject to Automated Quotation Adjustments. As provided 
for within Options 3, Section 15(c), Automated Quotation Adjustments 
protections are available to Market Makers and Lead Market Makers only. 
Any participant may enter an Opening Only Order. Typically Market 
Makers and Lead Market Makers submit Valid Width Quotes,\12\ as 
provided for within Options 3, Section 8, during the Opening Process. 
Further, an Opening Sweep,\13\ which is utilized by Market

[[Page 8958]]

Makers and Lead Market Makers, is protected by Automation Quotation 
Adjustments. The Exchange also proposes to note that OPG orders may not 
route. Both of these amendments represent current System functionality. 
This additional information is proposed to bring greater clarity to 
this TIF.
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    \12\ A Valid Width Quote is a two-sided electronic quotation 
submitted by a Phlx Electronic Market Maker that meets the following 
requirements: Options on equities and index options bidding and/or 
offering so as to create differences of no more than $.25 between 
the bid and the offer for each option contract for which the 
prevailing bid is less than $2; no more than $.40 where the 
prevailing bid is $2 or more but less than $5; no more than $.50 
where the prevailing bid is $5 or more but less than $10; no more 
than $.80 where the prevailing bid is $10 or more but less than $20; 
and no more than $1 where the prevailing bid is $20 or more, 
provided that, in the case of equity options, the bid/ask 
differentials stated above shall not apply to in-the-money series 
where the market for the underlying security is wider than the 
differentials set forth above. For such series, the bid/ask 
differentials may be as wide as the quotation for the underlying 
security on the primary market, or its decimal equivalent rounded 
down to the nearest minimum increment. The Exchange may establish 
differences other than the above for one or more series or classes 
of options. See Options 3, Section 8(a)(ix).
    \13\ An Opening Sweep is a one-sided order entered by a 
Specialist or ROT through SQF for execution against eligible 
interest in the System during the Opening Process. This order type 
is not subject to any protections listed in Options 3, Section 15, 
except for Automated Quotation Adjustments. The Opening Sweep will 
only participate in the Opening Process pursuant to Options 3, 
Section 8 and will be cancelled upon the open if not executed. See 
Options 3, Section 7(b)(6). This definition is being amended herein 
to update the terms Specialist and ROT to Lead Market Maker and 
Market Maker.
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Options 3, Section 10
    The Exchange proposes to make a grammatical correction to Options 
3, Section 10 which is non-substantive.
Options 3, Section 13
    The Exchange proposes to update incorrect rule references within 
Options 3, Section 13.
    The Exchange proposes to amend various references within Options 3, 
Section 13 to make clear the manner in which All-Or-None Orders \14\ 
are treated within a PIXL Auction. Specifically, the Exchange proposes 
to make clear that the term ``Reference BBO,'' as described within 
Options 3, Section 13(a)(2), describes displayed and non-displayed 
orders, however, All-Or-None Orders are not considered. The Exchange 
does not consider All-Or-None Orders, until the order is being 
allocated because the System is unable to determine whether an All-Or-
None Order can be satisfied until the System receives responses to the 
PIXL Order and is able to allocate the PIXL Order. The Exchange 
proposes to add rule text to make clear where the Reference BBO or the 
Reference cPBBO \15\ is mentioned, whether All-Or-None Orders are 
included or excluded. With respect to PIXL entry checks and, 
thereafter, the treatment of auction responses, All-Or-None Orders are 
not considered for price checks. The Exchange does consider All-Or-None 
Orders for allocation purposes. Options 3, Section 13(a)(5)(B)(i), 
which is not proposed to be amended, provides,
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    \14\ Options 3, Section 7(b)(5) provides, ``An All-or-None Order 
is a Limit Order or Market Order that is to be executed in its 
entirety or not at all. An All-or None Order may only be submitted 
by a Public Customer. All-or-None Orders are non-displayed and non-
routable. All-or-None Orders are executed in price-time priority 
among all Public Customer orders if the size contingency can be met. 
The Acceptable Trade Range protection in Options 3, Section 15(a) is 
not applied to All-Or-None Orders.'' The Exchange is proposing to 
amend Options 3, Section 7(b)(5), please see discussion regarding 
All-or-None Order on page 9.
    \15\ The term ``cPBBO'' means the best net debit or credit price 
for a Complex Order Strategy based on the PBBO for the individual 
options components of such Complex Order Strategy, and, where the 
underlying security is a component of the Complex Order, the 
National Best Bid and/or Offer for the underlying security. See 
Options 3, Section 14(a)(iv).

    If the Initiating Member selected the single stop price option 
of the PIXL Auction (except if it is a Complex Order), PIXL 
executions will occur at prices that improve the stop price, and 
then at the stop price with up to 40% of the remaining contracts 
after Public Customer interest is satisfied being allocated to the 
Initiating Member at the stop price. However, if only one other 
participant matches the stop price, then the Initiating Member may 
be allocated up to 50% of the contracts executed at such price. 
Remaining contracts shall be allocated pursuant to the algorithm set 
forth in Options 3, Section 10(a)(1)(G) among remaining quotes, 
orders and PAN responses at the stop price. Thereafter, remaining 
contracts, if any, shall be allocated to the Initiating Member. The 
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allocation will account for Surrender, if applicable.

    Options 3, Section 10 considers All-Or-None Orders that can be 
satisfied. This proposal clarifies the current System operation.
    The Exchange also proposes to add rule text, within Options 3, 
Section 13(f), to provide that with respect to a PIXL Order for the 
account of a Public Customer that is paired with an order for the 
account of another Public Customer, that All-or-None Orders that can be 
satisfied are included within the Reference BBO. The Exchange considers 
All-Or-None Orders when checking the Order Book for other Public 
Customer Orders. The proposed rule text within Options 3, Section 13(f) 
clarifies the current System operation. The addition of ``including 
Reference BBO'' is necessary with respect to Complex Orders because a 
Complex Public Customer-to-Public Customer Cross Order cannot trade 
equal to or through a non-displayed price. The Complex Public Customer-
to-Public Customer Cross Order would be rejected if the result were 
that it would trade at a price equal to or through the cPBBO.
    The Exchange proposes to note ``including Reference BBO'' within 
Options 3, Section 13(b)(2)(C) and 13(f) to conform the rule text 
throughout the rule. These amendments represent current System 
operation. The Reference BBO also pertains to Complex Orders because 
the cPBBO is derived from displayed quotes for the individual legs.
    These amendments are intended to bring greater clarity to the 
representation of All-Or-None Orders within this Rule.
    The Exchange proposes to amend Options 3, Section 13 in various 
places to replace ``one minimum price improvement increment,'' with 
``$0.01.'' This amendment is non-substantive.
    The Exchange proposes amendments to Options 3, Section 13(b)(7) and 
(8) to clarify the rule text. The proposed amendments are non-
substantive and are similar to amendments recently made to BX Options 
3, Section 13(ii)(I). The Exchange proposes to add some context to the 
rule to better reflect the current System operation. First, the 
Exchange purposes to add the word ``execution'' in the first sentences 
of Options 3, Section 13 (b)(7) and (8). The execution price of the 
PIXL Auction is utilized to compare to the price of an order on the 
Limit Order book. The Exchange utilizes the execution price today on 
Phlx. Adding the word ``execution'' makes clear to members that the 
initial PIXL Order stop price is not utilized to compare the same side 
of the market transactions at execution. If the potential execution 
price of the PIXL Order would be the same or better than the price of 
an order on the Limit Order book on the same side of the market as the 
PIXL Order then, today, the PIXL Order would be executed at a price 
$0.01 better than such limit order, regardless of whether such limit 
was a Public or Non-Public Customer Order. Second, while the phrase 
``or better'' is not clearly specified in the rule text, today, the 
System captures cases where PAN responses provide price improvement for 
the PIXL Order at prices that are crossed with the same side interest 
mentioned above. Third, the remainder of the changes are grammatical 
and technical in nature. The Exchange is creating two separate 
sentences for readability.
    The remainder of the proposed changes within Options 3, Section 13 
are grammatical or technical in nature and therefore non-substantive.
Options 3, Section 15
    The Exchange proposes to amend Options 3, Section 15(c)(1) to make 
clear that the Anti-Internalization functionality does not apply during 
the Opening Process described within Options 3, Section 8. A similar 
change was recently made to BX's Rules.\16\ The Exchange proposes to 
clarify that Anti-Internalization does not apply during an Opening 
Process or reopening following a trading halt, pursuant to Options 3, 
Section 8, to provide more specificity on how this functionality 
currently operates. The same procedures used during an Opening Process 
are used to reopen an option series after a trading halt, and therefore 
proposes to specify that Anti-Internalization will not apply during the 
Opening Process (i.e., the opening and halt reopening processes). 
During the Opening Process, Lead Market Makers are able to observe the 
primary market and then determine how they would like to submit a Valid 
Width

[[Page 8959]]

Quote. AIQ is unnecessary during an Opening Process due to the high 
level of control that Market Makers exercise over their quotes during 
this process. This clarifying rule text reflects current System 
functionality.
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    \16\ See Securities Exchange Act Release No. 89759 (September 3, 
2020). 85 FR 55877 (September 10, 2020) (SR-BX-2020-023).
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    The Exchange also proposes to amend Options 3, Section 15 to note 
that with Automated Quotation Adjustments all interest entered through 
SQF will be automatically removed. As provided for within Options 3, 
Section 7(a)(i)(B),

    Specialized Quote Feed'' or ``SQF'' is an interface that allows 
Lead Market Makers, Streaming Quote Traders (``SQTs'') and Remote 
Streaming Quote Traders (``RSQTs'') to connect, send, and receive 
messages related to quotes, Immediate-or-Cancel Orders, and auction 
responses into and from the Exchange. Features include the 
following: (1) Options symbol directory messages (e.g., underlying 
and complex instruments); (2) system event messages (e.g., start of 
trading hours messages and start of opening); (3) trading action 
messages (e.g., halts and resumes); (4) execution messages; (5) 
quote messages; (6) Immediate-or-Cancel Order messages; (7) risk 
protection triggers and purge notifications; (8) opening imbalance 
messages; (9) auction notifications; and (10) auction responses. The 
SQF Purge Interface only receives and notifies of purge request from 
the Lead Market Maker, SQT or RSQT. Lead Market Makers, SQTs and 
RSQTs may only enter interest into SQF in their assigned options 
series.

    Today, Quotes and Immediate-or-Cancel Orders that may be entered 
through SQF are removed when the Automated Quotation Adjustment risk 
mechanism is triggered. The current rule text only considers quotes 
entered through SQF. The amendment will update the rule text to 
represent current System functionality, and will bring greater clarity 
to Automated Quotation removals. Market Makers and Lead Market Makers 
utilize the Immediate-or-Cancel Orders within SQF to respond to 
auctions. The auction response requires the same protection afforded by 
the Automation Quotation Adjustments which it affords the underlying 
option in which the Market Maker or Lead Market Maker is quoting 
continuously among its assigned options classes. The Automation 
Quotation Adjustments protection removes both quotes and Immediate-or-
Cancel Orders submitted through SQF because Market Maker and Lead 
Market Maker risk applies to all interest in the underlying option in 
which the Market Maker or Lead Marker Maker is assigned to quote in 
throughout the trading day. Market Makers and Lead Marker Makers 
measure risk per underlying option. The System functionality for the 
Automated Quotation Adjustment is not being amended.
Options 3, Section 23
    The Exchange proposes to amend Options 3, Section 23(a)(2) which 
describes the PHLX Orders data feed. The proposed amendments represent 
the current information contained in the PHLX Orders feed. The proposed 
amendments are intended to better represent the information in the feed 
by adding more description to the current rule text.
    The Exchange proposes to note in the first sentence of Options 3, 
Section 23(a)(2) that PHLX Orders is a real-time full Limit Order book 
data feed that provides pricing information for orders on the PHLX 
Order book for displayed order types and All-or-None Orders,\17\ as 
well as market participant capacity.
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    \17\ See note 14 above.
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    All-or-None Orders are non-displayed and non-routable. They are 
executed in price-time priority among all Public Customer Orders if the 
size contingency can be met. All-or-None Orders have a quantity 
contingency requiring the full quantity of the order to execute in 
order for any trade to take place which may cause the order to not 
execute. If an All-or-None Order contingency cannot be met, the All-or-
None Order would be bypassed until such time as the contingency could 
be met.\18\ The Exchange is proposing to amend the rule text within 
Options 3, Section 7(b)(5) which describes All-or-None Orders to add 
more clarity about the dissemination of All-or-None Orders and the 
manner in which the System will bypass those orders if the contingency 
cannot be met.\19\
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    \18\ Options 3, Section 7(b)(5)(i) provides, ``Non-Displayed 
Contingency Orders. A Non-Displayed Contingency Order shall be 
defined to include the following non-displayed order types: (1) Stop 
Orders; and (2) All-or-None Orders.'' Unlike All-or-None Orders, 
Stop Orders are not available for execution until such time as the 
Stop Order's contingency has been met, therefore, Stop Orders are 
not displayed on data feeds or OPRA until the Stop Order is 
available for execution.
    \19\ See proposed Options 3, Section 7(b)(5).
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    The PHLX Orders data feed displays all orders on the Phlx Order 
Book with original information, this is in contrast to the Top of PHLX 
Options \20\ feed, which is not being amended by this proposal, that 
only provides information as to the displayed Order Book. The Exchange 
does not disseminate All-or-None Orders to either the Top of PHLX 
Options feed or the OPRA data feed because All-or-None Orders may only 
execute if the contingency can be met, otherwise the System would 
bypass the All-or-None Order. As such, All-or-None Orders are non-
displayed to avoid locking or crossing away markets by displaying this 
order type which may not execute because of the contingency attributed 
to the order pursuant to the Options Order Protection and Locked/
Crossed Plan.\21\ The Exchange does display All-Or-None Orders on the 
PHLX Orders data feed to inform market participants of orders that are 
available for execution. Public Customers submitting All-or-None Orders 
on Phlx desire their orders to be executed and the display of those 
orders on the PHLX Orders data feed allows other member organizations 
to see their orders are available to execute against those orders.
---------------------------------------------------------------------------

    \20\ Top of PHLX Options (``TOPO'') is a direct data feed 
product that includes the Exchange's best bid and offer price, with 
aggregate size, based on displayable order and quoting interest on 
Phlx and last sale information for trades executed on Phlx. The data 
contained in the TOPO data feed is identical to the data 
simultaneously sent to the processor for the OPRA and subscribers of 
the data feed. The data provided for each options series includes 
the symbols (series and underlying security), put or call indicator, 
expiration date, the strike price of the series, and whether the 
option series is available for trading on Phlx and identifies if the 
series is available for closing transactions only. See Options 3, 
Section 23(a)(1).
    \21\ 17 CFR 242.608. The ``NBBO'' is the best Protected Bid and 
Protected Offer as defined in the Options Order Protection and 
Locked/Crossed Markets Plan; Protected Bids and Protected Offers 
that are displayed at a price but available on the Exchange at a 
better non-displayed price shall be included in the NBBO at their 
better non-displayed price for purposes of this rule. See Reg. NMS 
Rule 600(a)(42). Options 5, Section 1(o) defines a ``Protected Bid'' 
or ``Protected Offer'' as a Bid or Offer in an options series, 
respectively, that: (i) Is disseminated pursuant to the OPRA Plan; 
and (ii) is the Best Bid or Best Offer, respectively, displayed by 
an Eligible Exchange.
---------------------------------------------------------------------------

    Similar to Phlx, Cboe permits all-or-none orders to rest in its 
order book and does not disseminate all-or-none orders to OPRA.\22\ 
Similar to Phlx, Cboe displays all-or-none orders on its Orders and 
Depth of Book feed.\23\
---------------------------------------------------------------------------

    \22\ Cboe Rule 5.6(b) provides, ``. . . An ``All-or-None'' or 
``AON'' order is an order to be executed in its entirety or not at 
all. An AON order may be a market or limit order. Users may not 
designate an AON order as All Sessions. (1) The Exchange does not 
disseminate bids or offers of AON orders to OPRA. (2) A User may not 
designate an AON order as Post Only. (3) An AON limit order is 
always subject to the Price Adjust process as set forth in Rule 
5.32. (4) A User may apply MCN (as defined below), but no other MTP 
Modifier (if a User applies any other MTP Modifier to an AON order, 
the System handles it as an MCN), to an AON order. (5) The Exchange 
may restrict the entry of AON orders in a series or class if the 
Exchange deems it necessary or appropriate to maintain a fair and 
orderly market. (6) A User may not designate a bulk message as 
AON.''
    \23\ See Section 4.5 of this specification: https://cdn.cboe.com/resources/membership/US_EQUITIES_OPTIONS_MULTICAST_PITCH_SPECIFICATION.pdf.
---------------------------------------------------------------------------

    The Exchange proposes to remove the second use of the word 
``Limit'', as it is redundant. The additional text makes clear that 
both displayed and non-displayed orders types and market participant 
capacity are available.

[[Page 8960]]

    The second sentence is being amended to add ``and complex'' in lieu 
of ``single and Complex Orders, and Complex Order Live Auction 
(``COLA'') for all symbols listed on Phlx. The sentence, as proposed, 
would state, ``PHLX Orders is currently provided as part of the TOPO 
Plus Orders data product. PHLX Orders provides real-time information to 
enable users to keep track of the single and complex order book(s).'' 
The Exchange believes the proposed sentence is more succinct.
    Finally, the Exchange proposes to add a sentence to the end of the 
description of PHLX Order feed that provides, ``The feed also provides 
auction and exposure notifications and order imbalances on opening/
reopening (size of matched contracts and size of the imbalance).'' This 
additional information will more clearly describe the PHLX Orders feed. 
The Exchange also proposes to add the same sentence to the end of the 
description for the PHLX Depth of Market feed within Options 3, Section 
23(a)(3) to also add the same specificity to that feed. The additional 
sentence reflects the current information provided in both the PHLX 
Orders and PHLX Depth of Market feeds.
    The removal of the word ``PHLX'' within Options 3, Section 23(a)(3) 
and addition of the word ``order'' are non-substantive technical 
amendments.
Options 5, Section 4
    The Exchange proposes to amend the sixth sentence of Options 5, 
Section 4(a) and make some technical amendments. As proposed, the 
sentence would provide, ``For purposes of this rule, the Phlx's best 
bid or offer or ``PBBO'' does not include All-or-None Orders or Stop 
Orders which have not been triggered. The ``internal PBBO'' shall refer 
to the actual better price of an order resting on Phlx's Order Book, 
which is not displayed, but available for execution, excluding Stop 
Orders which have not been triggered and All-or-None Orders which 
cannot be satisfied.'' Stop Orders must be triggered to be included in 
the internal PBBO. A Stop Order is not available until such time as its 
contingency is trigged and then that Stop Order becomes available for 
execution. Also, the Exchange inadvertently did not include the phrase, 
``which cannot be satisfied'' when referencing All-or-None Orders 
within Options 5, Section 4. The limitation is noted in other places 
within this rule. An All-or-None Order contingency must be met for this 
order type to execute, otherwise it will be executed at such time as 
the contingency could be met. Unlike the Stop Order which is only 
available once triggered,\24\ the All-or-None Order is available for 
execution once the contingency is met. This proposed amendment reflects 
current System operation.
---------------------------------------------------------------------------

    \24\ Stop orders are inactive until they are ``elected.'' Stop 
orders are elected when either the bid (offer) is updated to a price 
equal to or greater (less) than the stop price of a Buy (Sell) Stop 
order or an execution on the Exchange occurs at a price equal to or 
greater (less) than the stop price of a Buy(Sell) stop order. Stop 
order election takes place at the end of the transaction that caused 
the election and at that time the stop order enters the book as a 
new market or limit order depending on the participant instructions. 
Stop orders that are ``electable'' upon entry are rejected.
---------------------------------------------------------------------------

Options 8, Section 2
    The Exchange proposes to add a sentence within Options 8, Section 
2(a) which provides ``The following terms as used in the Rules shall, 
unless the context otherwise indicates, have the meanings herein 
specified:''. The Exchange proposes this sentence for context to the 
information which follows thereafter. This is a non-substantive change.
    The Exchange proposes to add a new defined term, ``Floor Lead 
Market Maker.'' This defined term will bring greater clarity to the 
Options 8 rules. The Exchange proposes to state, ``The term `Floor Lead 
Market Maker' is a member who is registered as an options Lead Market 
Maker pursuant to Options 2, Section 12(a) and has a physical presence 
on the Exchange's trading floor.'' This term is currently utilized 
within the Options 8 rules.
    The Exchange proposes to add the word ``Organization'' within 
Options 8, Section 2(a)(5). The word was inadvertently left out. This 
is not a substantive change. The term ``Member Organization'' is a 
defined term within General 1, Section 1(17).
Options 8, Section 32
    The Exchange proposes to amend Options 8, Section 32 to add ``FLEX 
Option'' to the list of order types that are available on Phlx. The 
Exchange proposes to provide that a FLEX Option is as described within 
Options 8, Section 34. Further, FLEX Options are not eligible for entry 
by a member for execution through the Options Floor Based Management 
System (``FBMS'').\25\ Phlx Options 8, Section 22 provides,
---------------------------------------------------------------------------

    \25\ FBMS, an order management system, is the gateway for the 
electronic execution of equity, equity index and U.S. dollar-settled 
foreign currency option orders represented by Floor Brokers on the 
Exchange's Options Floor. Floor Brokers contemporaneously upon 
receipt of an order and prior to the representation of such an order 
in the trading crowd, record all options orders represented by such 
Floor Broker into FBMS, which creates an electronic audit trail. The 
execution of orders into Phlx's electronic trading system also 
occurs via FBMS.

    (a) Options transactions on the Exchange's Trading Floor shall 
be executed in one of the following ways:
    (1) automatically by the Exchange Trading System as provided in 
applicable Exchange Rules;
    (2) through the Options Floor Based Management System. Members 
authorized to operate on the floor are not permitted to execute 
orders in the Exchange's options trading crowd, except as follows:
    (A) The Exchange may determine to permit executions otherwise 
than in accordance with subparagraphs (1) and (2) above respecting 
an option or all options in the event of a problem with Exchange 
systems.
    (B) In addition, members can execute orders in the options 
trading crowd pursuant to Options 8, Section 33, Accommodation 
Transactions (cabinet trades), and Options 8, Section 34, FLEX 
Equity, Index and Currency Options.
    (C) Multi-leg orders with more than 15 legs can be executed in 
the trading crowd.
    (D) The following split price orders that, due to FBMS system 
limitations, require manual calculation:
    (i) Simple orders not expressed in the applicable minimum 
increment (``sub-MPV'') and that cannot be evenly split into two 
whole numbers to create a price at the midpoint of the minimum 
increment; and (ii) complex and multi-leg orders with at least one 
option leg with an odd-numbered volume that must trade at a sub-MPV 
price or one leg that qualifies under (i) above.
    (E) As set forth in Options 8, Section 29(e)(v), members may use 
the Snapshot feature of the Options Floor Based Management System to 
provisionally execute orders in the options trading crowd.
* * * * *
    Today, FLEX Options are executed in open outcry on the Trading 
Floor and not through the Options Floor Broker Management System as 
provided for within Options 8, Section 22(a)(1)(B).\26\ The Exchange 
believes that the addition of FLEX Options within Options 8, Section 34 
will make clear the order types that are available for execution on the 
Trading Floor and also clearly note

[[Page 8961]]

that this order type is not eligible for FBMS.
---------------------------------------------------------------------------

    \26\ The Exchange has previously noted that FLEX may be executed 
manually. See Securities and Exchange Act Release No. 69471 (April 
29, 2013), 78 FR 26096 (May 3, 2013) (SR-Phlx-2013-09). The rule 
change noted that FLEX orders will continue to be executable by 
Floor Brokers in the trading crowd, rather than through FBMS because 
FBMS will not be able to accept FLEX orders, which have varied and 
complicated terms. Further, the Exchange requires floor brokers or 
their employees to enter the certain data elements into the 
Exchange's electronic audit trail in the same electronic format as 
the required information for equity and index options. Floor brokers 
or their employees must enter the required information for FLEX 
Options into the electronic audit trail on the same business day 
that a specific event surrounding the lifecycle of an order in FLEX 
(including, without limitation, orders, price or size changes, 
execution or cancellation) occurs. See Securities and Exchange Act 
Release No. 50997 (January 7, 2005), 70 FR 2444 (January 3, 2013) 
(SR-Phlx-2003-40). See also Options 8, Section 28(f).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\27\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\28\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Options 1, Section 1
    The Exchange's proposal to update the cross reference within 
Options 1, Section 1(b)(46), and make other grammatical amendments 
within Options 1, Section 1 are non-substantive.
Options 2, Section 4
    The Exchange's proposal to add a title to Options 2, Section 
4(c)(1) to make clear that this section applies intra-day is consistent 
with the Act because it will bring greater clarity to the rule text.
    The Exchange's proposal to remove the phrase, ``or its decimal 
equivalent rounded down to the nearest minimum increment'' within 
Options 2, Section 4(c)(1) is a non-substantive amendment because the 
bid/ask differentials may be as wide as the spread between the national 
best bid and offer in the underlying security, if rounding up it would 
cause the spread to be wider than the underlying spread, so rounding is 
superfluous.
Options 2, Section 6
    The Exchange's proposal to update certain terms within Options 2, 
Section 6, which conforms with a previously filed rule change,\29\ is 
consistent with the Act. The updates to change the names of the terms 
are non-substantive.
---------------------------------------------------------------------------

    \29\ See note 3 above.
---------------------------------------------------------------------------

Options 3, Section 6
    The Exchange's proposal to amend Options 3, Section 6 to re-number 
and re-letter the rule to conform to Phlx's rule structure, update rule 
citations, and add spacing where necessary are non-substantive 
amendments.
    The Exchange's proposal to amend current Options 3, Section 
6(a)(ii)(B)(2)(g)(iv)(A)(4) is consistent with the Act. While 
processing an order that is working through Acceptable Trade Ranges, if 
that order encounters a situation where the Exchange's next available 
price is the ABBO that also equals the outer limit of the Acceptable 
Trade Range, the order is able to post at its limit price on the Order 
Book after routing after it is executed with quotes at the away 
exchange. Any unexecuted contracts which return to the Exchange may 
post at their original limit price with a new timestamp, subject to 
certain entry checks. Order entry checks are applied for new orders 
when they post to the Order Book as provided for in Phlx Options 3, 
Section 5(a)(4). This proposed rule text protects investors and the 
general public because it will provide market participants with an 
expectation of how the System will handle orders that remain unexecuted 
in this scenario. The proposed amendment provides the market 
participant with greater certainty as to the order. Further, the 
Exchange offers market participants various options with respect to 
routing. A market participant may elect to route as a FIND or SRCH 
Order which provides the Exchange with instructions as to how an order 
may route anew once posted on the Order Book.\30\ A market participant 
may also choose to submit an order with varying TIF options (e.g., DAY, 
IOC, GTC) that provide the Exchange instructions as to how to either 
post an order on the Order Book or cancel back an order after 
exhausting its potential to trade upon entry. Further, this amendment 
provides more liquidity on the Exchange with the order posting to the 
Order Book, instead of potentially being cancelled after a 10 second 
period.
---------------------------------------------------------------------------

    \30\ See note 5 above.
---------------------------------------------------------------------------

    The Exchange's proposal to amend current Options 3, Section 
6(a)(ii)(B)(4)(a), to replace the term ``cancelled immediately'' with 
``rejected'' conforms the rule text to other uses of the word rejected 
within the Rulebook. This amendment is non-substantive.
    Finally, the Exchange's proposal to amend Supplementary Material 
.02 to Options 3, Section 6 to remove the phrase, ``resulting in the 
dissemination of a ``locked'' quotation (e.g., $1.00 bid--1.00 offer)'' 
is consistent with the Act. This phrase is out of date as under the 
current Locked and Crossed Market Plan, the Exchange would not 
disseminate a locked quotation. Rather, the Exchange would reprice its 
quote as described within Options 3, Section 4(b)(6). The Exchange 
believes that this rule text existed prior to the Locked and Crossed 
Market Plan and was not updated since that plan came into existence. 
The amendment will protect investors and the general public by removing 
this inaccurate statement.
Options 3, Section 7
    Similar to the changes proposed within Options 2, Section 6, the 
Exchange's proposal to replace the term ``Registered Options Traders'' 
or ``ROTs'' with ``Market Makers'' and replace ``Specialists'' with 
``Lead Market Makers'' within Options 3, Section 7 conforms the usage 
of these terms within Phlx's Rulebook.\31\ These non-substantive 
amendments which update outdated terms within Options 3, Section 7 is 
consistent with the Act.
---------------------------------------------------------------------------

    \31\ Id.
---------------------------------------------------------------------------

    The Exchange's proposal to amend All-or-None Orders within Options 
3, Section 7(b)(5) to add more language to the description of an All-
or-None Order is consistent with the Act because the proposed rule text 
will bring greater transparency to this order type. The Exchange today 
provides that All-or-None Orders are non-displayed and non-routable. To 
expand on this notion, the Exchange proposes to amend the sentence to 
provide, ``All-or-None Orders are non-routable. The Exchange does not 
disseminate bids or offers of All-or-None Orders to OPRA and the Top of 
PHLX Options feed, however All-or-None Orders are displayed in the PHLX 
Orders and PHLX Depth of Book feed.'' This additional rule text will 
make clear that these order types are not disseminated on OPRA. 
Further, the Exchange proposes to add, ``If an All-or-None Order 
contingency cannot be met, the All-or-None Order would be bypassed 
until such time as the contingency could be met.'' This language is 
intended to make clear that an All-or-None Order will not cause other 
orders to queue until such time as the All-or-None Order may execute. 
Rather, the All-or-None Order will rest on the Order Book until the 
contingency will be met, at which time that Public Customer All-or-None 
Order will have priority over other orders on the Book. The Exchange 
believes the addition of this rule text will bring greater transparency 
to the current System handling of All-or-None Orders.
    The Exchange's proposal to amend Options 3, Section 7(c)(3), 
``Opening Only,'' to correct incorrect rule text, and also add a 
clarifying sentence, is consistent with the Act. Today, Options 3, 
Section 7(c)(3) provides, ``An Opening Only (``OPG'') order is entered 
with a TIF of ``OPG''. This order can only be executed in the Opening 
Process pursuant to Options 3, Section 8. This order type would 
continue to not be valid outside of the Opening Process. This order 
type is not subject to any protections listed in Options 3, Section

[[Page 8962]]

15, except for Automated Quotation Adjustments.'' The Exchange proposes 
to remove the phrase ``except for Automated Quotation Adjustments'' 
because, today, an OPG order is not subject to Automated Quotation 
Adjustments. The Exchange believes that it is consistent with the Act 
to not apply any risk protections during the Opening Process as the 
Opening Process itself has boundaries within which orders will be 
executed. As provided for within Options 3, Section 15(c), Automated 
Quotation Adjustments protections are available to Market Makers and 
Lead Market Makers only. Any participant may enter an Opening Only 
Order. Typically Market Makers and Lead Market Makers submit Valid 
Width Quotes, as provided for within Options 3, Section 8, during the 
Opening Process. Further, an Opening Sweep,\32\ which is utilized by 
Market Makers and Lead Market Makers, is protected by Automation 
Quotation Adjustments. The Exchange's proposal to note that OPG orders 
may not route will bring greater transparency to the rule.
---------------------------------------------------------------------------

    \32\ An Opening Sweep is a one-sided order entered by a 
Specialist or ROT through SQF for execution against eligible 
interest in the System during the Opening Process. This order type 
is not subject to any protections listed in Options 3, Section 15, 
except for Automated Quotation Adjustments. The Opening Sweep will 
only participate in the Opening Process pursuant to Options 3, 
Section 8 and will be cancelled upon the open if not executed. See 
Options 3, Section 7(b)(6). This definition is being amended herein 
to update the terms Specialist and ROT to Lead Market Maker and 
Market Maker.
---------------------------------------------------------------------------

Options 3, Section 10
    The Exchange's proposal to make a grammatical correction to Options 
3, Section 10 is non-substantive.
Options 3, Section 13
    The Exchange's proposal to update certain rule references within 
Options 3, Section 13 is non-substantive.
    The Exchange's proposal to amend various references within Options 
3, Section 13 to make clear the manner in which All-Or-None Orders are 
treated within a PIXL Auction is consistent with the Act as this rule 
text will bring greater clarity to the current System operation. All-or 
None Orders are Limit Orders or Market Orders that are to be executed 
in their entirety or not at all, and are non-displayed.\33\ The term 
``Reference BBO,'' as described within Options 3, Section 13(a)(2), 
describes displayed and non-displayed orders, however, All-Or-None 
Orders are not considered. Today, the System does not consider All-Or-
None Orders, until the order is being allocated because the System is 
unable to determine whether an All-Or-None Order can be satisfied until 
the System receives responses to the PIXL Order and is able to allocate 
the PIXL Order. The Exchange proposes to add rule text to make clear 
where the Reference BBO or the Reference cPBBO is mentioned, whether 
All-Or-None Orders are included or excluded. With respect to PIXL entry 
checks and, thereafter, the treatment of auction responses, All-Or-None 
Orders are not considered for price checks. The Exchange's proposal 
protects investors and the general public by considering the 
contingency associated with an All-Or-None Order when it can be 
determined if the All-Or-None Order can be satisfied based on 
allocation priority and responses received to the PIXL Order.
---------------------------------------------------------------------------

    \33\ See Options 3, Section 7(b)(5).
---------------------------------------------------------------------------

    The Exchange's proposal to add rule text, within Options 3, Section 
13(f), to provide that with respect to a PIXL Order for the account of 
a Public Customer that is paired with an order for the account of 
another Public Customer, that All-Or-None Orders that can be satisfied 
are included within the Reference BBO is consistent with the Act. 
Today, Phlx does consider All-Or-None Orders when checking the Order 
Book for other Public Customer Orders. The proposed rule text within 
Options 3, Section 13(f) clarifies the current System operation. 
Specifically, the addition of ``including Reference BBO'' is necessary 
with respect to Complex Orders because a Complex Public Customer-to-
Public Customer Cross Order cannot trade equal to or through a non-
displayed price. The Complex Public Customer-to-Public Customer Cross 
Order would be rejected if the result were that it would trade at a 
price equal to or through the cPBBO.
    The Exchange's proposal to amend Options 3, Section 13 in various 
places to replace ``one minimum price improvement increment,'' with 
``$0.01'' is a non-substantive amendment.
    The Exchange's proposed amendments to Options 3, Section 13(b)(7) 
and (8) are consistent with the Act because they clarify the current 
rule text by adding ``or better'' to make clear that the execution 
price may be better than an order on the Limit Order Book. Today, this 
is the case. This context reflects the current System operation. 
Similar amendments were made recently made to BX Options 3, Section 
13(ii)(I).
    The remainder of the proposed changes within Options 3, Section 13 
are grammatical or technical in nature and therefore non-substantive.
Options 3, Section 15
    The Exchange's proposal to amend Options 3, Section 7(c)(3), 
``Opening Only,'' to correct incorrect rule text, and also add a 
clarifying sentence is consistent with the Act. The Exchange's proposal 
to remove the phrase ``except for Automated Quotation Adjustments'' 
because, today, an OPG order is not subject to Automated Quotation 
Adjustments. As provided for within Options 3, Section 15(c), Automated 
Quotation Adjustments protections are available to Market Makers and 
Lead Market Makers only. Any participant may enter an Opening Only 
Order. Typically Market Makers and Lead Market Makers submit Valid 
Width Quotes, as provided for within Options 3, Section 8, during the 
Opening Process. Further, an Opening Sweep, which is utilized by Market 
Makers and Lead Market Makers, is protected by Automation Quotation 
Adjustments. Nasdaq BX, Inc. recently adopted a similar rule.\34\ This 
proposal represent current System functionality.
---------------------------------------------------------------------------

    \34\ See Securities Exchange Act Release No. 89731 (September 1, 
2020), 85 FR 55524 (September 8, 2020) (SR-BX-2020-016) (Order 
Approving Proposed Rule Change To Amend BX's Opening Process in 
Connection With a Technology Migration).
---------------------------------------------------------------------------

    The Exchange's proposal to note that OPG orders may not route is 
consistent with the Act. This additional information will bring greater 
clarity to this TIF. This proposal represent current System 
functionality.
    The Exchange's proposal to amend Options 3, Section 15(c)(1) to 
make clear that the Anti-Internalization functionality does not apply 
during the Opening Process described within Options 3, Section 8 is 
consistent with the Act. Anti-Internalization will not apply during an 
Opening Process is consistent with the Act as it would provide more 
specificity on how this functionality currently operates. During the 
Opening Process, Lead Market Makers are able to observe the primary 
market and then determine how they would like to quote. Anti-
Internalization is unnecessary during an Opening Process due to the 
high level of control that Lead Market Makers exercise over their 
quotes during this process. A similar change was recently made to BX's 
Rules.\35\
---------------------------------------------------------------------------

    \35\ See note 16 above.
---------------------------------------------------------------------------

Options 3, Section 23
    The Exchange's proposal to amend Options 3, Section 23(a)(2), which 
describes the PHLX Orders data feed, is consistent with the Act. All-
or-None Orders are non-displayed and non-routable. They are executed in 
price-

[[Page 8963]]

time priority among all Public Customer Orders if the size contingency 
can be met. All-or-None Orders have a quantity contingency requiring 
the full quantity of the order to execute in order for any trade to 
take place which may cause the order to not execute. If an All-or-None 
Order contingency cannot be met, the All-or-None Order would be 
bypassed until such time as the contingency could be met.
    The PHLX Orders data feed displays all orders on the Phlx Order 
Book with original information, this is in contrast to the Top of PHLX 
Options feed, which is not being amended by this proposal, that only 
provides information as to the displayed Order Book. The Exchange does 
not disseminate All-or-None Orders to either the Top of PHLX Options 
feed or the OPRA data feed because All-or-None Orders may only execute 
if the contingency can be met, otherwise the System would bypass the 
All-or-None Order. As such, All-or-None Orders are non-displayed to 
avoid locking or crossing away markets by displaying this order type 
which may not execute because of the contingency attributed to the 
order pursuant to the Options Order Protection and Locked/Crossed 
Plan.\36\ The Exchange does display All-Or-None Orders on the PHLX 
Orders data feed to inform market participants of orders that are 
available for execution. Public Customers submitting All-or-None Orders 
on Phlx desire their orders to be executed and the display of those 
orders on the PHLX Orders data feed allows other member organizations 
to see their orders are available to execute against those orders.
---------------------------------------------------------------------------

    \36\ 17 CFR 242.608. Pursuant to Section 6 of the Plan, Locked 
and Crossed Markets, The Participants agree that they shall 
establish, maintain and enforce written rules that: (a) Require 
their members reasonably to avoid displaying Locked and Crossed 
Markets; (b) Are reasonably designed to assure the reconciliation of 
Locked and Crossed Markets; and (c) Prohibit its members from 
engaging in a pattern or practice of displaying Locked and Crossed 
Markets; in all cases subject to such exceptions as may be contained 
in the rules of a Participant approved by the Commission.
---------------------------------------------------------------------------

    Similar to Phlx, Cboe permits all-or-none orders to rest in its 
order book and does not disseminate all-or-none orders to OPRA.\37\ 
Similar to Phlx, Cboe displays all-or-none orders on its Depth of Book 
feed.\38\ The proposed amendments represent the current information 
contained in the PHLX Orders feed. The proposed amendments are intended 
to add more description and bring greater clarity to the rule text.
---------------------------------------------------------------------------

    \37\ Cboe Rule 5.6(b) provides, ``. . . An ``All-or-None'' or 
``AON'' order is an order to be executed in its entirety or not at 
all. An AON order may be a market or limit order. Users may not 
designate an AON order as All Sessions. (1) The Exchange does not 
disseminate bids or offers of AON orders to OPRA. (2) A User may not 
designate an AON order as Post Only. (3) An AON limit order is 
always subject to the Price Adjust process as set forth in Rule 
5.32. (4) A User may apply MCN (as defined below), but no other MTP 
Modifier (if a User applies any other MTP Modifier to an AON order, 
the System handles it as an MCN), to an AON order. (5) The Exchange 
may restrict the entry of AON orders in a series or class if the 
Exchange deems it necessary or appropriate to maintain a fair and 
orderly market. (6) A User may not designate a bulk message as 
AON.''
    \38\ See Section 4.5 of this specification. https://cdn.cboe.com/resources/membership/US_EQUITIES_OPTIONS_MULTICAST_PITCH_SPECIFICATION.pdf.
---------------------------------------------------------------------------

Options 5, Section 4
    The Exchange's proposal to amend Options 5, Section 4(a) is 
consistent with the Act as the proposal clarifies the definition of 
internal PBBO. Stop Orders must be triggered to be included in the 
internal PBBO. A Stop Order is not available until such time as its 
contingency is trigged and then that Stop Order becomes available for 
execution. Also, the Exchange inadvertently did not include the phrase, 
``which cannot be satisfied'' when referencing All-or-None Orders 
within Options 5, Section 4. The limitation is noted in other places 
within this rule. An All-or-None Order contingency must be met for this 
order type to execute, otherwise it will be executed at such time as 
the contingency could be met. Unlike the Stop Order which is only 
available once triggered,\39\ the All-or-None Order is available for 
execution once the contingency is met. This proposed amendment reflects 
current System operation.
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    \39\ See note 24 above.
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Options 8, Section 2
    The Exchange's proposal to add a new defined term, ``Floor Lead 
Market Maker'' is consistent with the Act and will bring greater 
clarity to the Options 8 rules. This term is currently utilized within 
the Options 8 rules.
    The Exchange's proposal to add an introductory sentence within 
Options 8, Section 2(a) is a non-substantive amendment which will bring 
greater clarity to the rule text. The addition of the word 
``Organization'' within Options 8, Section 2(a)(5) will correct the 
rule text to provide for a defined term.
Options 8, Section 32
    The Exchange's proposal to amend Options 8, Section 32 to add 
``FLEX Option'' to the list of order types that are available on Phlx 
is consistent with the Act because the addition of FLEX Options within 
Options 8, Section 34 will make clear the order types that are 
available for execution on the Trading Floor. Today, FLEX Options are 
executed in open outcry on the Trading Floor and not through the 
Options Floor Broker Management System as provided for within Options 
8, Section 22B.\40\
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    \40\ See note 25 above.
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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 not necessary or appropriate in 
furtherance of the purposes of the Act.
Options 1, Section 1
    The Exchange's proposal to update the cross reference within 
Options 1, Section 1(b)(46) and make other grammatical amendments 
within Options 1, Section 1 does not impose an undue burden on 
competition as these amendments are non-substantive.
Options 2, Section 4
    The Exchange's proposal to add a title to Options 2, Section 
4(c)(1) to make clear that this section applies intra-day does not 
impose an undue burden on competition because it will bring greater 
clarity to the rule text.
    The Exchange's proposal to remove the phrase, ``or its decimal 
equivalent rounded down to the nearest minimum increment'' within 
Options 2, Section 4(c)(1) does not impose an undue burden on 
competition. This is a non-substantive amendment because the bid/ask 
differentials may be as wide as the spread between the national best 
bid and offer in the underlying security, if rounding up it would cause 
the spread to be wider than the underlying spread, so rounding is 
superfluous.
Options 2, Section 6
    The Exchange's proposal to update certain terms within Options 2, 
Section 6 conform the rule with the use of terms in the Rulebook \41\ 
and does not impose an undue burden on competition. These changes are 
non-substantive.
---------------------------------------------------------------------------

    \41\ See note 3 above.
---------------------------------------------------------------------------

Options 3, Section 6
    The Exchange's proposal to amend Options 3, Section 6 to re-number 
and re-letter the rule to conform to Phlx's rule structure, update rule 
citations, and add spacing where necessary does not impose an undue 
burden on competition as these amendments are non-substantive.
    The Exchange's proposal to amend current Options 3, Section 
6(a)(ii)(B)(2)(g)(iv)(A)(4) does not

[[Page 8964]]

impose an undue burden on competition as this proposal will correct the 
rule text within Options 3, Section 6, and provide market participants 
with the expected outcome in this scenario. The proposed amendment 
provides the market participant with greater certainty as to the order. 
Further, the Exchange offers market participants various options with 
respect to routing and time in force. A market participant may elect to 
route as a FIND or SRCH Order which provides the Exchange with 
instructions as to how an order may route anew once posted on the Order 
Book.\42\ A market participant may also choose to submit an order with 
varying TIF options (e.g., DAY, IOC, GTC) that provide the Exchange 
instructions as to how to either post an order on the Order Book or 
cancel back an order after exhausting its potential to trade upon 
entry.
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    \42\ See note 5 above.
---------------------------------------------------------------------------

    The Exchange's proposal to amend current Options 3, Section 
6(a)(ii)(B)(4)(a), to replace ``cancelled immediately'' with the term 
``rejected'' conforms the rule text to other uses of the word rejected 
within the Rulebook. This amendment is non-substantive.
    The Exchange's proposal to amend Supplementary Material .02 to 
Options 3, Section 6 does not impose an undue burden on competition as 
this amendment corrects out of date rule text. The System does not 
disseminate locked quotations, rather the System re-prices orders. The 
amendment will remove an inaccurate statement and bring greater clarity 
to the Rulebook.
Options 3, Section 7
    The Exchange's proposal to update certain terms within Options 3, 
Section 7 to conform to a prior rule change \43\ does not impose an 
undue burden on competition. These changes are non-substantive.
---------------------------------------------------------------------------

    \43\ Id.
---------------------------------------------------------------------------

    The Exchange's proposal to amend All-or-None Orders within Options 
3, Section 7(b)(5) to add more language to the description of an All-
or-None Order does not impose an undue burden on competition because 
the proposed rule text will bring greater transparency to this order 
type. The Exchange today provides that All-or-None Orders are non-
displayed and non-routable. To expand on this notion, the Exchange 
proposes to amend the sentence to provide, ``All-or-None Orders are 
non-routable. The Exchange does not disseminate bids or offers of All-
or-None Orders to OPRA and the Top of PHLX Options feed, however All-
or-None Orders are displayed in the PHLX Orders and PHLX Depth of Book 
feed.'' This additional rule text will make clear that these order 
types are not disseminated on OPRA. Further, the Exchange proposes to 
add, ``If an All-or-None Order contingency cannot be met, the All-or-
None Order would be bypassed until such time as the contingency could 
be met.'' This language is intended to make clear that an All-or-None 
Order will not cause other orders to queue until such time as the All-
or-None Order may execute. Rather, the All-or-None Order will rest on 
the Order Book until the contingency will be met, at which time that 
Public Customer All-or-None Order will have priority over other orders 
on the Book. The Exchange believes the addition of this rule text will 
bring greater transparency to the current System handling of All-or-
None Orders.
    The Exchange's proposal to amend Options 3, Section 7(c)(3), 
``Opening Only,'' to amend incorrect rule text, and also add a 
clarifying sentence does not impose an undue burden on competition. An 
OPG Only Order may be executed by any market participant in the Opening 
Process pursuant to Options 3, Section 8. This order type would 
continue to not be not valid outside of the Opening Process.
    Removing the phrase ``except for Automated Quotation Adjustments'' 
does not impose an undue burden on competition because, today, an OPG 
Order is not subject to Automated Quotation Adjustments. The Opening 
Process itself has boundaries within which orders will be executed. Any 
participant may enter an Opening Only Order. Typically Market Makers 
and Lead Market Makers submit Valid Width Quotes, as provided for 
within Options 3, Section 8, during the Opening Process. Further, an 
Opening Sweep which is utilized by Market Makers and Lead Market 
Makers, is protected by Automation Quotation Adjustments. The 
Exchange's proposal to note that OPG orders may not route will bring 
greater transparency to the rule.
Options 3, Section 10
    The Exchange's proposal to make a grammatical correction to Options 
3, Section 10 is non-substantive.
Options 3, Section 13
    The Exchange's proposal to update certain rule references within 
Options 3, Section 13 is non-substantive.
    The Exchange's proposal to amend various references within Options 
3, Section 13 to make clear the manner in which All-Or-None Orders are 
treated by the System within a PIXL Auction does not impose an undue 
burden on competition as this rule text will bring greater clarity to 
the current System operation. All market participants will be treated 
in a uniform manner when they enter an All-Or-None Order into PIXL.
    The Exchange's proposal to add rule text, within Options 3, Section 
13(f), to provide that with respect to a PIXL Order for the account of 
a Public Customer that is paired with an order for the account of 
another Public Customer, that All-Or-None Orders that can be satisfied 
are included within the Reference BBO does not impose an undue burden 
on competition. The proposed rule text within Options 3, Section 13(f) 
clarifies the current System operation. The Reference BBO also pertains 
to Complex Orders because the cPBBO is derived from displayed quotes 
for the individual legs.
    The Exchange's proposal to make clear where the Reference BBO is 
specified within this rule, or the Reference cPBBO, that All-or-None 
Orders are excluded does not impose an undue burden on competition. The 
Exchange proposes to note ``including Reference BBO'' within Options 3, 
Section 13(b)(2)(C) and 13(f) to conform the rule text. The Reference 
BBO also pertains to Complex Orders because the cPBBO is derived from 
displayed quotes for the individual legs. This represents current 
System operation.
    The Exchange's proposal to amend Options 3, Section 13 in various 
places to replace ``one minimum price improvement increment,'' with 
``$0.01'' is a non-substantive amendment.
    The Exchange's proposed amendments to Options 3, Section 13(b)(7) 
and (8) do not impose an undue burden on competition because they 
clarify current rule text without any substantive amendment.
    The remainder of the proposed changes within Options 3, Section 13 
are grammatical or technical in nature and therefore non-substantive.
Options 3, Section 15
    The Exchange's proposal to note that the Automated Quotation 
Adjustments protection removes both quotes and Immediate-or-Cancel 
Orders does not impose an undue burden on competition. Market Makers 
and Lead Market Makers utilize the Immediate-or-Cancel Orders within 
SQF to respond to auctions. The auction response requires the same 
protection afforded by the Automation Quotation Adjustments which it 
affords the underlying option in which the Market Maker or Lead Market 
Maker is quoting continuously among its assigned options classes. The 
Automation Quotation Adjustments

[[Page 8965]]

protection removes both quotes and Immediate-or-Cancel Orders submitted 
through SQF because Market Maker and Lead Market Maker risk applies to 
all interest in the underlying option in which the Market Maker or Lead 
Marker Maker is assigned to quote in throughout the trading day. Market 
Makers and Lead Marker Makers measure risk per underlying option. The 
System functionality for the Automated Quotation Adjustment is not 
being amended.
    The Exchange believes its proposal to clarify that Anti-
Internalization will not apply during an Opening Process does not 
impose an undue burden on competition as it would provide more 
specificity on how this functionality currently operates. During the 
opening, Market Makers are able to observe the primary market and then 
determine how they would like to quote. Market Makers are sophisticated 
market participants that have their own tools and other protections to 
manage risk during the Opening Process.
Options 3, Section 23
    The Exchange's proposal to amend Options 3, Section 23(a)(2), which 
describes the PHLX Orders data feed, does not impose an undue burden on 
competition. The proposed amendments represent current information 
contained in the PHLX Orders feed. This proprietary data feed displays 
all orders on the Order Book with original information, whereas the 
Exchange's the Top of PHLX Options feed, which is not being amended by 
this proposal, only provides information as to the displayed order 
book. The Exchange does not disseminate non-displayed order information 
to the OPRA data feed, rather only non-displayed prices are submitted. 
The Exchange does display All-Or-None Orders on the PHLX Orders data 
feed to inform market participants of orders that are available for 
execution. Public Customers submitting All-or-None Orders on Phlx 
desire their orders to be executed and the display of those orders on 
the PHLX Orders data feed allows other member organizations to see 
their orders are available to execute against those orders. The 
proposed amendments are simply clarifying in nature and intended to add 
more description to the rule.
Options 5, Section 4
    The Exchange's proposal to amend Options 5, Section 4(a), and make 
some technical amendments, does not impose an undue burden on 
competition. Stop Orders must be triggered to be included in the 
internal PBBO. A Stop Order is not available until such time as its 
contingency is triggered and then that Stop Order becomes available for 
execution. Also, the Exchange inadvertently did not include the phrase, 
``which cannot be satisfied'' when referencing All-or-None Orders 
within Options 5, Section 4. The limitation is noted in other places 
within this rule. An All-or-None Order contingency must be met for this 
order type to execute, otherwise it will be executed at such time as 
the contingency could be met. Unlike the Stop Order which is only 
available once triggered,\44\ the All-or-None Order is available for 
execution once the contingency is met. This proposed amendment reflects 
current System operation and will bring greater clarity to the rule.
---------------------------------------------------------------------------

    \44\ See note 24 above.
---------------------------------------------------------------------------

Options 8, Section 2
    The Exchange's proposal to add a new defined term, ``Floor Lead 
Market Maker'' does not impose an undue burden on competition. This 
defined term, which is currently utilized within the Options 8 rules, 
will bring greater clarity to the Options 8 rules.
    The Exchange's proposal to add an introductory sentence within 
Options 8, Section 2(a) that provides context to the information that 
follows is a non-substantive amendment. The addition of the word 
``Organization'' within Options 8, Section 2(a)(5) will make clear the 
reference to the defined term ``member organization.''
Options 8, Section 32
    The Exchange's proposal to amend Options 8, Section 32 to add 
``FLEX Option'' to the list of order types that are available on Phlx 
does not impose an undue burden on competition because the addition of 
FLEX Options within Options 8, Section 34 will make clear the order 
types that are available for execution on the Trading Floor. Today, 
FLEX Options are executed in open outcry on the Trading Floor and not 
through the Options Floor Broker Management System as provided for 
within Options 8, Section 22B.\45\
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    \45\ See note 23 above.
---------------------------------------------------------------------------

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 \46\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\47\
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \47\ 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \48\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\49\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requests 
that the Commission waive the 30-day operative delay so that the 
proposal may become operative immediately upon filing. The Exchange 
asserts that waiver of the 30-day operative delay would be consistent 
with the protection of investors and the general public by permitting 
the Exchange to immediately remove the two incorrect and contradictory 
sentences in the Phlx routing rule to bring greater clarity and 
transparency to its rules. The Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and 
the public interest as it will bring greater transparency to the rules 
of the Exchange. Accordingly, the Commission waives the 30-day 
operative delay and designates the proposed rule change operative upon 
filing.\50\
---------------------------------------------------------------------------

    \48\ 17 CFR 240.19b-4(f)(6).
    \49\ 17 CFR 240.19b-4(f)(6)(iii).
    \50\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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

[[Page 8966]]

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-2021-05 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2021-05. 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-2021-05 and should be submitted on 
or before March 3, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
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    \51\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02710 Filed 2-9-21; 8:45 am]
BILLING CODE 8011-01-P


