[Federal Register Volume 86, Number 212 (Friday, November 5, 2021)]
[Notices]
[Pages 61346-61351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-24165]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93486; File No. SR-Phlx-2021-67]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 4, 
Rule 3301B

November 1, 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 October 25, 2021, 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 Equity 4, Rule 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.

[[Page 61347]]

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 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.\8\
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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 Exchange. See Equity 1, Section 1(b)(7) [sic].
    \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 Exchange. See id.
    \5\ The RASH (Routing and Special Handling) Order entry protocol 
is a proprietary protocol that allows member organizations 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 an Exchange proprietary 
protocol that allows subscribers to quickly enter orders into the 
System and receive executions. OUCH accepts limit Orders from member 
organizations, 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 member organizations 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 member 
organizations 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.
    \8\ The Exchange notes that its sister exchange, the Nasdaq 
Stock Market, LLC, has filed an identical proposal, Securities 
Exchange Act Release No. 34-93245 (October 4, 2021), 86 FR 56302 
(October 8, 2021) (SR-NASDAQ-2021-075); and Nasdaq BX, Inc. plans to 
do the same concurrent with this filing.
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    To support and prepare for these upgrades and enhancements, the 
Exchange recently submitted three rule filings to the Commission that 
amended its rules pertaining to, among other things, Market Maker Peg 
Orders, Orders with Reserve Size, and Orders with Pegging and Trade Now 
Attributes.\9\ The Exchange now proposes to further amend its Rules 
governing the Discretion Order Attribute, at Rule 3301B(g), so that it 
aligns with how the System, once upgraded, will handle these Orders 
with Discretion going forward.
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    \9\ See Securities Exchange Act Release No. 34-92377 (July 13, 
2021), 86 FR 38147 (July 19, 2021) (SR-PHLX-2021-40); Securities 
Exchange Act Release No. 34-91263 (March 5, 2021), 86 FR 13950 
(March 11, 2021) (SR-Phlx-2021-11); Securities Exchange Act Release 
No. 34-90558 (December 3, 2020), 85 FR 79231 (December 9, 2020) (SR-
Phlx-2020-51).
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    As set forth in Rule 3301B(g), Discretion is an Order Attribute 
under which an Order has a non-displayed discretionary price range 
within which the entering Participant is willing to trade. Presently, 
the Rule provides that the System will process Discretionary Orders, 
upon entry, by generating a Non-Displayed Order with a Time-in-Force of 
Immediate-or-Cancel (a ``Discretionary IOC'') that will attempt to 
access liquidity available within the discretionary price range. The 
System will not permit the Discretionary IOC to execute, however, if 
the price of the execution would trade through a Protected Quotation. 
If more than one Order with Discretion satisfies conditions that would 
cause the generation of a Discretionary IOC simultaneously, the order 
in which such Discretionary IOCs will be presented for execution is 
random, based on the respective processing time for each such Order. 
Whenever a Discretionary IOC is generated, the underlying Order with 
Discretion will be withheld or removed from the Exchange's Book and 
will then be routed and/or placed on the Exchange's Book if the 
Discretionary IOC does not exhaust the full size of the underlying 
Order with Discretion, with its price determined by the underlying 
Order Type and Order Attributes selected by the Participant. In 
addition to prescribing a procedure for handling Discretionary Orders 
generally, the existing Rule also describes special procedures for 
handling Discretionary Orders with various types of Routing Attributes 
and with pegged discretionary price ranges.
    The Exchange proposes to amend the process by which it processes 
Discretionary Orders in several respects.\10\ First, the Exchange 
proposes to clarify existing text which states that ``[a] Participant 
may also specify a limit price beyond which the discretionary price 
range does not extend.'' The Exchange intended for this clause to 
address the specific scenario where a Participant enters a 
Discretionary Order with a Discretionary Pegging Attribute, but the 
existing text is not explicit in this regard and thus is amenable to 
confusion. The Exchange proposes to restate this provision as follows 
to make its intention explicit: ``[a] Participant may also specify a 
limit on the discretionary price range of an Order that is entered with 
a Discretionary Pegging Attribute,'' and then further clarify the 
outcome of setting such a limit by stating ``beyond which the 
discretionary pegged price may not extend.'' \11\ The Exchange notes 
that it uses the word ``may'' in this provision rather than ``shall'' 
because for Discretionary Orders with Pegging Attributes, the Rules 
specify the discretionary range applicable to those Orders; setting a 
limit on how far that range is allowed to extend is optional.
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    \10\ The Exchange proposes to replace certain existing 
references in the Rule from ``PSX'' to the ``Exchange'' or the 
``System.'' This proposed change is non-substantive as these terms 
are synonymous.
    \11\ For example, a displayed Order to buy might have a limit 
price of $11.00 and a discretionary price range pegged to the Best 
Bid with a discretionary limit of $11.05. If the NBB is $11.02 at 
the time of entry, the order will be displayed at $11.00 with a 
discretionary price range up to $11.02. If the NBB later become 
$11.06, the Order will still be displayed at $11.00 and its 
discretionary price range will be capped at $11.05.
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    As a further organizational matter, the Exchange proposes to 
consolidate the portion of the Rule that describes the general 
procedure for handling Discretionary Orders with the portion that 
described the process for handling Discretionary Orders without a 
Routing Attribute assigned to them. Because non-routed orders conform 
to the general procedure, it is redundant to restate the process.
    Second, as to the substance of the general Discretionary Order 
handling procedures, the Exchange proposes the following changes. 
Rather than generate a Discretionary IOC immediately upon Order entry 
(regardless of available liquidity within the discretionary price 
range) and then post the unexecuted portion of the Discretionary Order 
on the Exchange's Book, the Exchange proposes instead to first, upon 
entry, execute the Discretionary Order against any previously posted 
Orders on the Exchange Book that are priced equal to

[[Page 61348]]

or better than the limit price of the Discretionary Order. If no such 
Order exists with which the Discretionary Order may fully execute upon 
entry, then the Exchange will post the Discretionary Order to the 
Exchange's Book in accordance with the parameters that apply to the 
underlying Order Type. In such case, the Exchange will generate a 
Discretionary IOC, with a price equal to the highest price for an Order 
to buy (lowest price for an Order to sell) within the discretionary 
price range and a size equal to the order available for execution, if 
and when the System determines that liquidity within the discretionary 
price range is available for execution. The Exchange will then execute 
the Discretionary IOC (provided that doing so would not trade-through a 
Protected Quotation). The Exchange proposes this change to increase the 
efficiency with which the Exchange processes Discretionary Orders. The 
Exchange intended for the existing process to enable Discretionary 
Orders to execute immediately within the discretionary price range upon 
entry, but in practice, the Exchange observes that they rarely do so. 
Attempts to locate available liquidity within the discretionary range 
immediately upon entry delay Discretionary Orders from entering the 
priority queue on the Exchange Book, resulting in an opportunity cost 
when no such liquidity is located. The proposed rule change will 
reorient the order handling process for Discretionary Orders so that it 
no longer sacrifices potential queue priority for attempts at possible 
immediate executions within the discretionary price range. Given that 
immediate executions of Discretionary Orders within the discretionary 
price range rarely occur, the Exchange does not believe that this 
change will have any material adverse impact on the performance of such 
Orders. Moreover, the Exchange will still allow for Discretionary 
Orders to attempt to execute against available liquidity immediately 
upon entry if contra-side liquidity, priced equal to or better than the 
limit price of the Discretionary Order, is resting on the Book at that 
time. And, if participants select a Time-in-Force of Immediate-or-
Cancel for such Orders, then the orders will attempt to execute against 
available liquidity within the discretionary price range, which is 
unchanged from current functionality.
    As noted above, whereas now, the Exchange generates a Discretionary 
IOC that is equal to the size of the Discretionary Order, and then 
posts shares to the Book that remain unexecuted after the Exchange 
executes the Discretionary IOC against available liquidity in the 
discretionary price range, the Exchange instead proposes to generate a 
Discretionary IOC that will be equal to the size of the available 
liquidity within the discretionary range, with any residual shares of 
the Discretionary Order remaining on the Book and retaining their 
existing priority. If the Discretionary IOC is not fully executed,\12\ 
the posted portion of the Discretionary Order will be reentered on the 
Exchange Book as a new Discretionary Order with a new timestamp and 
with an increased size to include the unexecuted portions of the 
Discretionary IOC. The Exchange believes that the proposed rule change 
will benefit participants by enabling their Discretionary Orders to 
remain executable against new incoming liquidity when available 
liquidity within the discretionary price range is smaller than the full 
size of the Discretionary Order (provided that Participants have not 
specified a minimum quantity for execution).
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    \12\ A Discretionary IOC may not execute fully in a race 
condition where an incoming order executes against all or a portion 
of the available liquidity within the discretionary price range 
before the Discretionary IOC is able to do so.
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    The Exchange proposes to move existing rule text that governs the 
situations where more than one Order with Discretion satisfies 
conditions that would cause the generation of a Discretionary IOC 
simultaneously. Whereas now, in all such situations, the order in which 
such Discretionary IOCs are presented for execution is random, based on 
the respective processing time for each such Order; going forward, the 
system will present Discretionary IOCs associated with Discretionary 
Orders without Routing differently as it gains responsibility for 
handling such Orders from RASH. That is, the system will present 
multiple Discretionary IOCs associated with such Orders for execution 
in price-time priority, as is specified in Rule 3307(a). The price by 
which the Orders will be prioritized for execution refers to the price 
of the Discretionary IOCs that are generated, meaning the highest price 
for the Order with Discretion to buy (lowest price for the Order with 
Discretion to sell) within the discretionary price range. This change 
will not affect Discretionary Orders with Routing, when Discretionary 
IOCs are generated for routing, which will continue to be handled by 
RASH under the existing random presentment procedures.
    The Exchange proposes to add to the Rule the following example to 
illustrate the new procedures. If a Participant enters a Price to 
Display Order to buy 500 shares at $11 with a discretionary price range 
of up to $11.03, then upon entry, the System will first execute the 
Order against any orders resting on the Exchange Book that are priced 
equal to or better than the limit price of the Discretionary Order. 
Assuming that no such resting order exists, the System will post the 
full size of the Price to Display Order to the Exchange Book in 
accordance with its parameters. If there is an Order on the Exchange 
Book to sell 200 shares priced at $11.03, the System will generate a 
Discretionary IOC to buy priced at $11.03 to execute against the Order 
on the Exchange Book, if an execution at $11.03 would not trade through 
a Protected Quotation; the remaining 300 shares of the original Order 
with Discretion will remain posted on the Exchange Book.\13\
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    \13\ The Exchange also proposes to move and reorganize, but not 
substantively modify, certain text within Rule 3301B(g) to eliminate 
duplication and improve its readability.
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    With respect to procedures for processing Discretionary Orders with 
Routing Attributes assigned to them, the Exchange proposes to 
reorganize and consolidate the procedures, as well as to eliminate 
obsolete and duplicative text, and to improve readability.
    Specifically, the Exchange proposes to largely delete bulleted text 
that presently describes distinct procedures for handling Discretionary 
Orders with passive and reactive routing strategies, as well as for 
handling Discretionary Orders with Routing Attributes depending upon 
whether the discretionary price range of the Order is pegged. The 
Exchange proposes to eliminate certain existing text that describes 
order handling procedures for Discretionary Orders with passive and 
reactive routing strategies after being posted because such procedures 
do not differ from the general procedures for handling Discretionary 
Orders with respect to available liquidity on the Exchange Book within 
the discretionary price range.\14\ As to Discretionary Orders with 
reactive routing strategies, the Exchange believes that it is 
sufficient to state, going forward, that if

[[Page 61349]]

a Discretionary IOC associated with such an Order does not exhaust the 
full size of the Discretionary Order, then the Exchange will generate 
and route additional Discretionary IOCs in response to new quotations 
within the discretionary price range according to the routing strategy 
assigned to the Order. Moreover, the Exchange proposes to retain 
language in the existing rule which states that, if a Discretionary 
Order uses a passive routing strategy, the System will not generate 
additional Discretionary IOC orders in response to new away market 
quotations within the discretionary price range unless the Order is 
updated in a manner that causes it to receive a new timestamp, in which 
case the Order will behave in the same manner as a newly entered 
Discretionary Order.
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    \14\ The Exchange proposes to retain the concept in the existing 
rule that whenever it generates a Discretionary IOC, the underlying 
Order with Discretion will be withheld or removed from the 
Exchange's Book and will then be routed and/or placed on the 
Exchange's Book if the Discretionary IOC does not exhaust the full 
size of the underlying Order with Discretion, with its price 
determined by the underlying Order Type and Order Attributes 
selected by the Participant. However, rather than applying this 
concept to all Discretionary Orders going forward, the proposal will 
apply it only to Discretionary Orders with Routing Attributes, as 
this is the context in which the concept applies, in practice.
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    Moreover, the Exchange proposes to delete existing Rule text that 
describes how the Exchange handles Discretionary Orders with Routing 
Attributes in scenarios where such Orders do and do not have pegged 
discretionary price ranges associated with them. The text presently 
states that where a Discretionary IOC associated with such an Order 
does not exhaust the full size of the Order, the Exchange will post the 
remaining size of the Order to the Exchange Book in accordance with the 
parameters that apply to the underlying Order Type. With respect to 
Discretionary Orders with reactive routing strategies, the Exchange 
will examine whether there is an order on the Exchange Book or an 
accessible quotation at another trading venue that is within the 
discretionary price range and against which the Discretionary Order 
could execute. When the Exchange currently examines the Exchange Book 
in the scenario where the Discretionary Order with reactive routing has 
a pegged discretionary price range, it examines only displayed orders 
on the Exchange Book for this purpose, whereas if the Discretionary 
Order with Routing has no pegged discretionary price range, the 
Exchange examines all orders on its Book, including non-displayed 
orders. This distinction in order handling procedures is a legacy of 
the existing limitations of the RASH protocol that will no longer be 
applicable after the Exchange migrates responsibility from RASH to the 
System for handling Discretionary Orders. That is, going forward, the 
System will be capable of and will examine the Exchange Book for both 
displayed and non-displayed orders in the discretionary price range 
against which to execute Discretionary Orders with Routing, regardless 
of whether the discretionary price range of such Orders is pegged.
    In the new proposed paragraph that governs Discretionary Orders 
with Routing, the Exchange also proposes to amend existing text 
concerning the price and size at which the Exchange will generate a 
Discretionary IOC when, before routing, it determines that there is 
liquidity available on the Exchange Book within the discretionary price 
range with which the Discretionary Orders may interact.\15\ Whereas 
existing rule text states that the Exchange will generate a 
Discretionary IOC in this instance that matches the price and size of 
the Order on the Exchange Book, the proposed rule text states that the 
Exchange will generate a Discretionary IOC equal to the highest price 
for the Order with Discretion to buy (lowest price for the Order with 
Discretion to sell) within the discretionary price range and a size 
equal to the applicable size of the available liquidity on the Exchange 
Book.
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    \15\ The Exchange notes that certain routing strategies, such as 
Directed Orders, do not check the Exchange system first before 
routing to other market centers.
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    Additionally in that same paragraph, the Exchange proposes to 
change existing language that governs the generation of a Discretionary 
IOC in response to accessible quotations within the discretionary price 
range at away market centers. The existing rule text states that the 
Exchange will generate a Discretionary IOC in this instance that 
matches the price and size of the away market quotation within the 
discretionary price range. The proposed rule, by contrast, states that 
the Exchange will generate one or more Discretionary IOCs that will 
match the price of the away market quotation. The size of the 
Discretionary IOC(s) generated in this instance will be determined by 
the router to maximize execution opportunities, consistent with 
existing routing strategies.
    Last, as explained above, the Exchange proposes to move the 
following existing text to the new consolidated paragraph governing 
procedures for handling Discretionary Orders with Routing. The text 
clarifies that for these Orders (as opposed to Discretionary Orders 
without Routing), the existing practice of randomly presenting for 
execution simultaneously generated Discretionary IOCs for routing is 
still applicable; because responsibility for this functionality is 
still being managed by RASH, it will not be affected by the present 
system changes:
    Furthermore, if a new quotation satisfies conditions that would 
cause the simultaneous generation of a Discretionary IOC for more than 
one Order with Discretion that have been assigned a Routing Order 
Attribute, the order in which such Discretionary IOCs are presented for 
execution is random, based on the respective processing time for each 
such Order.
    The Exchange intends to implement the foregoing changes during the 
Fourth Quarter of 2021. The Exchange will issue an Equity Trader Alert 
at least 7 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,\16\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\17\ 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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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposed amendments to the 
Discretionary Order Attribute, at Rule 3301B(g), are consistent with 
the Act. The Exchange believes that its proposal to revise its process 
for handling Discretionary Orders so that they post to the Exchange 
Book, upon entry after checking for available interest at or better 
than their limit price, rather than attempt to execute against 
available liquidity within the discretionary price range immediately 
upon entry, will benefit Participants and investors because such 
immediate attempts at execution within the discretionary price range 
rarely succeed and typically result only in Discretionary Orders 
posting to the Book later than they would otherwise, and thus resulting 
in potentially lower queue priority. The proposed amendments will 
provide Participants with an opportunity to first secure queue priority 
by posting to the Book upon entry (after checking for available 
interest at or better than their limit price), and only generate a 
Discretionary IOC if and when the System later determines that 
liquidity within the discretionary price range is available for 
execution. The Exchange notes that it will still allow for 
Discretionary Orders to attempt to execute against available liquidity 
within the discretionary price range immediately upon entry if 
Participants select a Time-in-Force of Immediate-or-Cancel for such 
Orders.

[[Page 61350]]

    Additionally, the proposal to generate Discretionary IOCs that 
equal the size of available liquidity within the discretionary range, 
rather than the full size of Discretionary Orders, will benefit 
participants by enabling their Discretionary Orders to maintain their 
queue priority on the Exchange Book when available liquidity within the 
discretionary price range is smaller than the full size of the 
Discretionary Order.
    The Exchange believes that it is consistent with the Act to amend 
the Rule to state that if the Discretionary IOC is not fully executed, 
the posted portion of the Discretionary Order will be reentered on the 
Exchange Book as a new Discretionary Order with a new timestamp and 
with an increased size to include the unexecuted portions of the 
Discretionary IOC. The Exchange believes that the proposed rule change 
will benefit participants by enabling their Discretionary Orders to 
remain executable against new incoming liquidity when available 
liquidity within the discretionary price range is smaller than the full 
size of the Discretionary Order (provided that Participants have not 
specified a minimum quantity for execution).
    Furthermore, it is consistent with the Act to reorganize, 
consolidate, and otherwise amend the provisions of the existing Rule 
that describe procedures for handling Discretionary Orders with Routing 
Attributes, passive and reactive routing strategies, and pegged and 
non-pegged discretionary price ranges. The proposed changes will 
improve the clarity and readability of the Rule by eliminating 
unnecessary and duplicative text. It will also reflect an upgrade in 
the ability of the Exchange to examine its Book for both displayed and 
non-displayed orders against which a Discretionary Order with Routing 
and a pegged discretionary price range may execute (with such upgrade 
occurring as a product of responsibility for Discretionary Order 
handling migration from RASH to the Exchange's matching System). It 
also is consistent with the Act to clarify that for Discretionary 
Orders with Routing Attributes, the existing practice of randomly 
presenting for execution simultaneously generated Discretionary IOCs 
for routing still applies.
    Likewise, it is consistent with the Act to modify the price at 
which the Exchange will generate Discretionary IOCs when, before 
routing a Discretionary Order with Routing, the Exchange determines 
that there is liquidity available on the Exchange Book within the 
discretionary price range with which the Discretionary Orders may 
interact. The current practice of generating a Discretionary IOC with a 
price equal to the price of the Order on the Exchange Book does not 
maximize the potential for executions, whereas, generating a 
Discretionary IOC with a price equal to the highest price for an Order 
to buy (lowest price for an Order to sell) within the discretionary 
price range allows the Discretionary IOC to access additional liquidity 
at a more aggressive price in the event of a race condition where the 
liquidity with which the Order with Discretion is reacting is removed 
before the Discretionary IOC is able to execute against it.
    Finally, it is consistent with the Act to amend existing rule text 
to state that when the Exchange generates a Discretionary IOC to 
attempt to execute accessible liquidity within the discretionary price 
range at another market center, the Exchange will generate a 
Discretionary IOC that will match the price of the away market 
quotation, but the size will be determined by the router to maximize 
execution opportunities, consistent with existing routing strategies. 
The current rule, as written, does not contemplate the scenario where 
the remaining size of the Order with Routing is less than the size of 
the away market quotation; in which case a smaller order must be routed 
to the quoting market, comprising the full size of the Order with 
Routing. The new rule text allows for this behavior, and so more 
clearly communicates the operation of the System to Participants. 
Furthermore, additional non-displayed liquidity may exist on the 
quoting market in excess of the displayed size of the quote. It 
benefits the Participant to maximize execution opportunities for their 
orders, so the new rule text allows the router to send orders that are 
larger than the size of the away market quotation. Because an Order 
assigned both Discretion and Routing Order Attributes is withheld or 
removed from the Exchange Book whenever a Discretionary IOC is 
generated for routing, thereby yielding priority on the Exchange Book, 
there are no opportunity costs to routing additional shares in excess 
of the displayed quote.

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 amend and clarify the 
Exchange's Rules regarding its Order 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 unduly burden intra-
market competition among various Exchange participants. The Exchange's 
proposal to revise its processes for handling Discretionary Orders upon 
entry does have the potential to improve the relative queue positions 
of Discretionary Orders on the Exchange's Book, but these changes are 
warranted because existing processes are inefficient and result in 
opportunity costs to users of Discretionary Orders. Indeed, 
participants potentially lose queue priority when the System delays 
posting their Discretionary Orders to the Book only after making 
attempts to execute those Orders against liquidity within its 
discretionary price range immediately upon entry. Similarly, 
participants potentially lose queue priority whenever available 
liquidity within the discretionary price range is less than the size of 
a Discretionary Order, and the System processes residual shares by 
posting them to the Book with new timestamps.
    Furthermore, routing orders to away markets for only the displayed 
size of their quotes unnecessarily limits the opportunity for execution 
against non-displayed liquidity, while restricting the price of a 
Discretionary IOC to the price of an available order on the Exchange 
Book (as opposed to assigning the most aggressive price allowed within 
the discretionary range) limits opportunities for execution when race 
conditions cause the original order that the Discretionary IOC was 
created to execute against to no longer be available by the time the 
Discretionary IOC is received by the System. The proposed changes have 
the potential to increase execution opportunities, but these changes 
are warranted because they will equally benefit all Exchange 
participants utilizing the Discretion Attribute by making the processes 
more efficient.
    Likewise, there will be no adverse competitive impact from the 
Exchange's proposal to examine both displayed and non-displayed orders 
in the Exchange Book (as opposed to only displayed orders, in current 
practice) in the scenario where the Discretionary Order with reactive 
routing has a pegged discretionary price range. As explained

[[Page 61351]]

above, existing handling procedures in this scenario is a legacy of the 
limitations of the RASH protocol, which will no longer be applicable 
after the Exchange migrates responsibility from RASH to the System for 
handling Discretionary Orders.
    For similar reasons, there will be no adverse competitive impact 
associated with the Exchange's proposal to present Discretionary IOCs 
associated with Discretionary Orders without Routing in price-time 
priority, rather than in random order, as is currently the case and as 
will remain the case for Discretionary IOCs associated with 
Discretionary Orders with Routing. Whereas RASH is unable to present 
Discretionary IOCs in time-price [sic] priority, the Exchange's system 
will be capable of doing so, and thus it will do so when it assumes 
responsibility for handling Discretionary Orders without routing. 
Insofar as RASH will continue to handle Discretionary Orders with 
Routing, existing randomized processes for presenting Discretionary 
IOCs associated with those Orders for routing will continue to apply.

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 \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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 [email protected]. Please include 
File Number SR-Phlx-2021-67 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-2021-67. 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-2021-67 and should be submitted on 
or before November 26, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-24165 Filed 11-4-21; 8:45 am]
BILLING CODE 8011-01-P


