[Federal Register Volume 88, Number 124 (Thursday, June 29, 2023)]
[Notices]
[Pages 42117-42123]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-13790]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97788; File No. SR-Phlx-2023-26]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx 
Options 7 Regarding PXL Order Pricing

June 22, 2023.
    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 June 13, 2023, 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, II, and III, below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Pricing Schedule at Options 7: 
Section 1, General Provisions; Section 3, Rebates and Fees for Adding 
and Removing Liquidity in SPY; and Section 6, Other Transaction 
Fees.\3\
---------------------------------------------------------------------------

    \3\ On June 2, 2023, the Exchange withdrew SR-Phlx-2023-20 and 
replaced it with SR-Phlx-2023-24. On June 5, 2023, the Exchange 
withdrew SR-Phlx-2023-24 and replaced it with SR-Phlx-2023-25. On 
June 13, 2023, the Exchange withdrew SR-Phlx-2023-25 and replaced it 
with the instant filing.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Phlx's Pricing Schedule at Options 
7: Section 1, General Provisions; Section 3, Rebates and Fees for 
Adding and Removing Liquidity in SPY; and Section 6, Other Transaction 
Fees. Specifically, Phlx proposes to: (1) introduce new references in 
Options 7, Section 1; and (2) amend its Price Improvement XL (``PIXL'') 
\4\ pricing for both options overlying SPY and other options to provide 
more detail regarding the pricing of unrelated market or marketable 
interest and make other amendments to utilize the proposed references. 
Each change is described below.
---------------------------------------------------------------------------

    \4\ A member may electronically submit for execution an order it 
represents as agent on behalf of a Public Customer, broker-dealer, 
or any other entity (``PIXL Order'') against principal interest or 
against any other order it represents as agent (an ``Initiating 
Order'') provided it submits the PIXL Order for electronic execution 
into the PIXL Auction pursuant to Options 3, Section 13.
---------------------------------------------------------------------------

Options 7, Section 1
    The Exchange proposes to amend Options 7, Section 1(c) to introduce 
four new references: ``Initiating Order'', ``PIXL Auction Order'', 
``PIXL Order'', and ``PIXL Response.''
    The Exchange proposes to provide that the term ``Initiating Order'' 
is one-side of a PIXL Auction Order that represents principal or other 
interest which is paired with a PIXL Order.
    The Exchange proposes to provide that a ``PIXL Auction Order'' is a 
two-sided, paired order, comprised of a PIXL Order and an Initiating 
Order.
    The Exchange proposes to provide that a ``PIXL Order'' is one-side 
of a PIXL Auction Order that represents an agency order on behalf a 
Public Customer, broker-dealer or other entity which is paired with an 
Initiating Order.
    Finally, the Exchange proposes to provide that a ``PIXL Response'' 
is interest that executed against the PIXL Order pursuant to Options 3, 
Section 13.
    The Exchange believes that these references will bring more 
transparency to Phlx's PIXL pricing.\5\
---------------------------------------------------------------------------

    \5\ The Exchange also proposes a technical amendment in Options 
7, Section 1(c) to add a period to the end of the reference to 
``floor transaction.''
---------------------------------------------------------------------------

Options 7, Section 3
    The Exchange proposes to amend PIXL pricing for options overlying 
SPY in Options 7, Section 3, Part C. The Exchange proposes to replace 
the current text below with a proposed table. The current text of 
Options 7, Section 3, related to PIXL Executions in SPY, provides,

     Initiating Order: $0.05 per contract. Members or member 
organizations that qualify for Options 7, Section 2, Customer Rebate 
Tiers 2 through 6 or qualify for the Monthly Firm Fee Cap are 
eligible for a rebate of $0.12 per contract for all SPY Complex PIXL 
Orders greater than 499 contracts when contra to an Initiating 
Order, provided the member or member organization executes an 
average of 2,500 contracts per day of SPY Complex PIXL Orders in a 
month.
     When the PIXL Order is contra to the Initiating Order, 
a Customer PIXL Order will be assessed $0.00 per contract and all 
other Non-Customer market participants will be assessed a $0.38 per 
contract fee when contra to an Initiating Order.
     When the PIXL Order is contra to other than the 
Initiating Order, the PIXL Order will be assessed $0.00 per 
contract, unless the PIXL Order is a Customer, in which case the 
Customer will receive a rebate of $0.40 per contract.
     All other Non-Customer contra parties to the PIXL Order 
that are not the Initiating Order will be assessed a Fee for 
Removing Liquidity of $0.50 per contract or will receive the Rebate 
for Adding Liquidity. When the PIXL Order is contra to a Lead Market 
Maker or Market Maker quote, which was established at the initiation 
of a PIXL auction, the Customer PIXL Order will not be eligible for 
a rebate.

    In lieu of the current rule text, the Exchange proposes the below 
table.

[[Page 42118]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Type of market participant                         PIXL Order executes
                                                against Initiating Order
                                                           \1\
                                                  PIXL Order executes against a PIXL Response or
                                                      unrelated market or marketable interest
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 Initiating   PIXL Order   PIXL Order   PIXL Order   PIXL Response or  Unrelated market or marketable
                                                  Order fee          fee       rebate          fee   unrelated market   interest received prior to a
                                                                                                        or marketable   PIXL Auction fee
                                                                                                    interest received
                                                                                                        during a PIXL
                                                                                                          Auction fee
--------------------------------------------------------------------------------------------------------------------------------------------------------
Customer......................................        $0.05        $0.00    \2\ $0.40          N/A              $0.00  Options 7, Section 3, Part A
                                                                                                                        Rebate for Adding Liquidity/
                                                                                                                        Options 7, Section 3, Part B Fee
                                                                                                                        for Adding Liquidity.
Non-Customer..................................         0.05         0.38          N/A        $0.00               0.50  Options 7, Section 3 Part A
                                                                                                                        Rebate for Adding Liquidity/
                                                                                                                        Options 7, Section 3 Part B Fee
                                                                                                                        for Adding Liquidity.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The current rule text in the first bullet states that the 
Initiating Order is $0.05 per contract. This fee currently applies to 
Customers \6\ and Non-Customers \7\ and is reflected in the proposed 
table in a manner consistent with the current rule text. The remainder 
of the sentence was relocated to footnote 1. The Exchange proposes to 
amend the original rule text by breaking the current sentence into two 
sentences and restating the rebate that will be paid by the Exchange 
for SPY Complex Orders in a succinct manner. This non-substantive 
amendment to new footnote 1 would provide,
---------------------------------------------------------------------------

    \6\ The term ``Customer'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Customer range at The Options Clearing Corporation (``OCC'') which 
is not for the account of a broker or dealer or for the account of a 
``Professional'' (as that term is defined in Options 1, Section 
1(b)(45)). See Options 7, Section 1(c).
    \7\ The term ``Non-Customer'' applies to transactions for the 
accounts of Lead Market Makers, Market Makers, Firms, Professionals, 
Broker-Dealers and JBOs. See Options 7, Section 1(c).

    A rebate of $0.12 will be paid to members or member 
organizations that qualify for Options 7, Section 2, Customer Rebate 
Tiers 2 through 6 or qualify for the Monthly Firm Fee Cap. The 
rebate will be paid on all SPY Complex PIXL Orders greater than 499 
contracts when contra to an Initiating Order, provided the member or 
member organization executes an average of 2,500 contracts per day 
---------------------------------------------------------------------------
of SPY Complex PIXL Orders in a month.

    The current rule text in the second bullet applies to the scenario 
where the PIXL Order is contra to the Initiating Order. In this case, 
the Customer PIXL Order is assessed $0.00 per contract and Non-Customer 
PIXL Orders are assessed a $0.38 per contract fee. The proposed table 
reflects these current PIXL Order fees and does not substantively amend 
the rule text in this second bullet.
    The current rule text in the third bullet applies to the scenario 
when the PIXL Order is contra to a PIXL Response or unrelated market or 
marketable interest. In this case, the PIXL Order is $0.00 for Non-
Customers and the Customer receives a rebate of $0.40 per contract. The 
proposed table reflects these current PIXL Order fees and does not 
substantively amend the rule text in this third bullet.
    Finally, the current rule text in the fourth bullet provides that 
Non-Customer PIXL Responses or unrelated market or marketable interest 
that trades with a PIXL Order are assessed a Fee for Removing Liquidity 
of $0.50 per contract. The Exchange notes that this fee is currently 
appliable to unrelated market or marketable interest that was received 
during the PIXL Auction. This fee is reflected in the proposed table 
but is not referred to as a Fee to Remove Liquidity, rather simply as a 
fee. The rule text states that Non-Customers could also receive a 
Rebate for Adding Liquidity, but such a rebate is not possible in this 
scenario as the PIXL Responses and unrelated market or marketable 
interest would be removing liquidity in this scenario. Because the 
Rebate for Adding Liquidity is not possible in this scenario, it is 
being removed. The last sentence of the final bullet is reflected in 
footnote 2 to the table and the language has been amended to replace 
the words ``contra to'' with ``executed against.'' Also, the word 
``unrelated'' was added before Lead Market Maker or Market Maker quote 
because that interest would have been placed on the order book. The 
Exchange amended the language to clearly state ``which was received 
prior to the PIXL Auction'' instead of ``established at the initiation 
of a PIXL auction.'' \8\ The Exchange believes the proposed rule text 
adds clarity to understand the particular scenario.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 80064 (February 24, 
2017), 82 FR 11666 (February 24, 2017) (SR-Phlx-2017-15).
---------------------------------------------------------------------------

    The current rule text does not make clear the fee that a Customer 
PIXL Response or unrelated market or marketable interest, received 
during a PIXL Auction, would be assessed when that response or interest 
executes against a PIXL Order. Today, the Customer PIXL Response or 
unrelated market or marketable interest received during a PIXL Auction 
is not assessed a fee in this scenario. The Exchange proposes to 
memorialize the $0.00 per contract rate in this proposed table at this 
time to add transparency to the SPY PIXL pricing. This fee is not 
changing, rather it is being memorialized in the proposed table.
    The Exchange notes that unrelated market or marketable interest 
received in SPY during a PIXL Auction is noted in the current rule 
text, other than the Customer PIXL Response or unrelated market or 
marketable interest described above. Today, unrelated market or 
marketable interest in SPY received prior to the PIXL Auction is 
subject to the simple order book pricing within Options 7, Section 3, 
Part A and the complex order book pricing within Options 7, Section 3, 
Part B. At this time, the Exchange proposes to memorialize this pricing 
in the proposed table. The Exchange applies the order book pricing 
within Options 7, Section 3, Parts A and B to interest received prior 
to the PIXL Auction, which is considered unrelated market or marketable 
interest for purposes of the PIXL Auction, because at the time the 
interest was submitted to the order book, the Phlx members and member 
organizations would have known \9\ that

[[Page 42119]]

there was no ongoing PIXL Auction and would not expect to be subject to 
the PIXL pricing. Rather, these market participants would be subject to 
SPY order book pricing similar to all other orders entered into Phlx's 
order book. In contrast, the Exchange applies the SPY PIXL pricing 
within Options 7, Section 3 to the unrelated market or marketable 
interest that interest arrived during a PIXL Auction because Phlx seeks 
to incentivize members and member organizations to submit PIXL Auction 
Orders to receive a guaranteed execution and potential price 
improvement. Phlx members and member organizations submitting interest 
to the order book during a PIXL Auction are aware that they may be 
allocated in the PIXL Auction. The Exchange assesses the SPY PIXL 
pricing within Options 7, Section 3 in the same manner that responders 
to the PIXL Auction are assessed fees for their PAN responses. The 
unrelated market or marketable interest that received an allocation 
within the PIXL Auction would be uniformly subject to the same fees as 
those Phlx members and member organizations who submitted PAN responses 
and were allocated, thereby receiving a guaranteed execution and 
potential price improvement. The pricing for unrelated market or 
marketable interest received during a PIXL Auction is not changing, 
this is the pricing being assessed today by Phlx.
---------------------------------------------------------------------------

    \9\ Phlx members and member organizations become aware of 
ongoing PIXL Auctions when Phlx disseminates a PIXL Auction 
Notification or ``PAN.'' When the Exchange receives a PIXL Order for 
Auction processing, a PAN detailing the side and size and option 
series of the PIXL Order is sent over the Exchange's TOPO data feed 
pursuant to Options 3, Section 23(a)(1) and Specialized Quote Feed 
pursuant to Options 3, Section (a)(i)(B). See Phlx Options 3, 
Section 13(b)(1)(C).
---------------------------------------------------------------------------

Options 7, Section 6
    The Exchange proposes to amend Options 7, Section 6.A, PIXL 
Pricing. The Exchange proposes to create paragraphs in lieu of the 
single block text within Options 7, Section 6.A which describes the 
Initiating Order, and demarcate each paragraph with a symbol. The 
Exchange is not otherwise amending that paragraph.
    Next, the Exchange proposes to amend the rule text under the 
heading, ``PIXL Order Executions in Options 7, Section 4, Multiply 
Listed Options (including ETFs, ETNs and indexes which are Multiply 
Listed):'' The Exchange is amending the current rule text in the second 
bullet which currently states,

    When a PIXL Order is contra to a PIXL Auction Responder, a 
Customer PIXL Order will be assessed $0.00 per contract, other Non-
Customer PIXL Orders will be assessed $0.30 per contract in Penny 
Symbols or $0.38 per contract in Non-Penny Symbols. A Responder that 
is a Lead Market Maker or a Market Maker will be assessed $0.25 per 
contract in Penny Symbols or $0.40 per contract in Non-Penny 
Symbols. Other Non-Customer Responders will be assessed $0.48 per 
contract in Penny Symbols or $0.70 per contract in Non-Penny Symbols 
when contra to a PIXL Order. A Responder that is a Customer will be 
assessed $0.00 per contract in Penny Symbols and Non-Penny Symbols.

    The Exchange proposes to create two separate bullets in lieu of 
this one bullet. The first bullet would provide,

    When a PIXL Order executes against a PIXL Response or unrelated 
market or marketable interest received during a PIXL Auction, a 
Customer PIXL Order will be assessed $0.00 per contract, and other 
Non-Customer PIXL Orders will be assessed $0.30 per contract in 
Penny Symbols or $0.38 per contract in Non-Penny Symbols.

    In amending this sentence, the Exchange proposes to replace the 
words ``is contra to'' with ``executes against.'' Also, the Exchange 
proposes to replace the words ``Auction Responder'' with ``PIXL 
Response or unrelated market or marketable interest received during a 
PIXL Auction.'' Finally, the Exchange is adding an ``and'' in the 
sentence to make the sentence clear. These non-substantive changes 
utilize the references proposed within Options 7, Section 1. As 
amended, the second bullet would provide,

    A PIXL Response or unrelated market or marketable interest 
received during a PIXL Auction from a Lead Market Maker or a Market 
Maker will be assessed $0.25 per contract in Penny Symbols or $0.40 
per contract in Non-Penny Symbols. Other Non-Customer PIXL Responses 
and unrelated market or marketable interest received during a PIXL 
Auction will be assessed $0.48 per contract in Penny Symbols or 
$0.70 per contract in Non-Penny Symbols when contra to a PIXL Order. 
A PIXL Response or unrelated market or marketable interest received 
during a PIXL Auction from a Customer will be assessed $0.00 per 
contract in Penny Symbols and Non-Penny Symbols.

    Similar to the first bullet, the Exchange proposes to replace 
``Responder'' with ``PIXL Response or unrelated market or marketable 
interest received during a PIXL Auction.'' \10\ These non-substantive 
changes utilize the references proposed within Options 7, Section 1.
---------------------------------------------------------------------------

    \10\ The Exchange proposes other technical amendments for 
readability of the sentence.
---------------------------------------------------------------------------

    The Exchange is also amending the current rule text in the third 
bullet which currently states,

    When a PIXL Order is contra to a resting order or quote a 
Customer PIXL Order will be assessed $0.00 per contract, other Non-
Customer will be assessed $0.30 per contract and the resting order 
or quote will be assessed the appropriate Options Transaction Charge 
in Options 7, Section 4.

    The Exchange proposes to create two separate bullets in lieu of 
this one bullet. The first bullet would provide,

    When a PIXL Order is a Customer order and executes against 
unrelated market or marketable interest received prior to a PIXL 
Auction, the Customer order will be assessed $0.00 per contract. 
Unrelated market or marketable interest received prior to a PIXL 
Auction will be assessed the appropriate Options Transaction Charge 
in Options 7, Section 4.

    In amending this sentence, the Exchange proposes to replace the 
words ``is contra to a resting order or quote'' with ``executes against 
unrelated market or marketable interest received prior to a PIXL 
Auction'' and ``PIXL Order'' with ``Customer PIXL Order.'' Any order 
resting on the order book would have been received prior to the PIXL 
Auction. The Exchange also proposes to add a new sentence that states, 
``Unrelated market or marketable interest received prior to a PIXL 
Auction will be assessed the appropriate Options Transaction Charge in 
Options 7, Section 4.'' Today, the rule text does not describe the 
manner in which the Exchange prices unrelated market or marketable 
interest received prior to the commencement of a PIXL Auction. This new 
sentence memorializes the current pricing that Phlx members and member 
organizations are assessed for such interest, which is order book 
pricing. As amended, the second bullet would provide,

    Non-Customer PIXL Orders will be assessed $0.30 per contract 
when trading with an unrelated market or marketable interest 
received prior to the PIXL Auction and the unrelated market or 
marketable interest received prior to the PIXL Auction will be 
assessed the appropriate Options Transaction Charge in Options 7, 
Section 4.

    The Exchange is adding the words ``PIXL Order'' after Non-Customer 
since it started a new sentence to retain the original reference to a 
PIXL Order at the beginning of the current sentence.\11\ To add more 
context to this scenario, the Exchange is also noting that ``when 
trading with an unrelated market or marketable interest received prior 
to the PIXL Auction'' to make clear the type of interest trading with 
the Non-Customer PIXL Order. The Exchange is also replacing the phrase 
``resting order or quote'' with ``unrelated market or marketable 
interest received prior to the PIXL Auction.'' These non-substantive 
amendments utilize the references within Options 7, Section 1. Also, of 
note, any order resting on the order

[[Page 42120]]

book would have been received prior to the PIXL Auction.
---------------------------------------------------------------------------

    \11\ The Exchange is also making other technical changes to 
start a new paragraph, removing ``, other.''
---------------------------------------------------------------------------

    As noted herein, the Exchange applies the order book pricing within 
Options 7, Section 4 to interest received prior to the PIXL Auction, 
which is considered unrelated market or marketable interest for 
purposes of the PIXL Auction, because at the time the interest was 
submitted to the order book, the Phlx members and member organizations 
would have known that there was no ongoing PIXL Auction and would not 
expect to be subject to the PIXL pricing. In contrast, the Exchange 
applies PIXL pricing within Options 7, Section 6 to the unrelated 
market or marketable interest when interest arrived during a PIXL 
Auction because Phlx seeks to incentivize members and member 
organizations to submit PIXL Auction Orders to receive a guaranteed 
execution, and potential price improvement. Phlx members and member 
organizations submitting interest to the order book during a PIXL 
Auction are aware that they may be allocated in the PIXL Auction. These 
market participants would be subject to order book pricing similar to 
all other orders entered into Phlx's order book. The Exchange assesses 
the PIXL pricing in Options 7, Section 6 in the same manner that 
responders to the PIXL Auction are assessed fees for their PAN 
responses. The unrelated market or marketable interest that received an 
allocation within the PIXL Auction would be uniformly subject to the 
same fees as those Phlx members and member organizations who submitted 
PAN responses and were allocated, thereby receiving a guaranteed 
execution and potential price improvement.
    The Exchange's pricing models for the order book and PIXL Auction 
each seek to attract liquidity to Phlx and reward members and member 
organizations differently for the order flow. To this end, the 
Exchange's pricing considers the manner in which orders interact with 
the PIXL Auction based on the timing of when the order entered the 
order book. The Exchange's pricing is consistent with its current 
practice of assigning the applicable pricing for auctions versus order 
book pricing depending on how and when the order was submitted to the 
Exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The proposed changes to its Pricing Schedule are reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for options transaction 
services that constrain its pricing determinations in that market. The 
fact that this market is competitive has long been recognized by the 
courts. In NetCoalition v. Securities and Exchange Commission \14\ 
(``NetCoalition''), the D.C. Circuit stated, ``[n]o one disputes that 
competition for order flow is `fierce.' . . . As the SEC explained, 
`[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \15\
---------------------------------------------------------------------------

    \14\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \15\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options transaction services. The Exchange is only one of sixteen 
options exchanges to which market participants may direct their order 
flow. Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules. Within the 
foregoing context, the proposal represents a reasonable attempt by the 
Exchange to attract additional order flow to the Exchange and increase 
its market share relative to its competitors.
Options 7, Section 1
    The Exchange's proposal to amend Options 7, Section 1(c) to 
introduce four new references: ``Initiating Order'', ``PIXL Auction 
Order'', ``PIXL Order'', and ``PIXL Response'' is reasonable, equitable 
and not unfairly discriminatory because these references will bring 
more transparency to Phlx's PIXL pricing and also apply in the same 
manner to all PIXL transactions executed on the Exchange.
Options 7, Section 3
    The Exchange's proposal to amend PIXL pricing for options overlying 
SPY in Options 7, Section 3, Part C by replacing the current text below 
with a proposed table is reasonable, equitable and not unfairly 
discriminatory because the proposed table reflects the current pricing 
offered today on Phlx and adds transparency to that pricing. The 
proposed table does not amend the current rule text except to add the 
Customer PIXL Response or unrelated market or marketable interest 
received during a PIXL Auction, which is currently not described in the 
rule text, and to specify the pricing for unrelated market or 
marketable interest received during a PIXL Auction.
    Assessing a SPY Customer PIXL Response or unrelated market or 
marketable interest received during a PIXL Auction is reasonable 
because the Exchange currently does not assess a Customer a PIXL Order 
fee when the PIXL Order trades against a PIXL Response or unrelated 
market or marketable interest. The Exchange believes that not assessing 
a fee will attract more SPY Customer liquidity to Phlx's PIXL Auction. 
The proposed SPY Customer PIXL Response and unrelated market or 
marketable interest of $0.00 per contract reflects the current rate 
assessed today to these participants.
    Assessing a SPY Customer PIXL Response or unrelated market or 
marketable interest received during a PIXL Auction is equitable and not 
unfairly discriminatory because Customer orders bring valuable 
liquidity to the market, which liquidity benefits other market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts Lead Market Makers 
and Market Makers. An increase in the activity of these market 
participants in turn facilitates tighter spreads, which may cause an 
additional corresponding increase in order flow from other market 
participants.
    Assessing unrelated market or marketable interest in SPY received 
prior to a PIXL Auction the simple order book pricing within Options 7, 
Section 3, Part A and the complex order book pricing within Options 7, 
Section 3, Part B is reasonable because at the time the interest was 
submitted to the order book, the Phlx members and member organizations 
would have known that there was no ongoing PIXL Auction and would not 
expect to be subject to the PIXL pricing. In contrast, applying SPY 
PIXL pricing within Options 7, Section

[[Page 42121]]

3 to the unrelated market or marketable interest that interest arrived 
during a PIXL Auction is reasonable because Phlx seeks to incentivize 
members and member organizations to submit PIXL Auction Orders to 
receive a guaranteed execution and potential price improvement. Phlx 
members and member organizations submitting interest to the order book 
during a PIXL Auction are aware that they may be allocated in the PIXL 
Auction. The Exchange's pricing models for the order book and PIXL 
Auction each seek to attract liquidity to Phlx and reward members and 
member organizations differently for the order flow. To this end, the 
Exchange's pricing considers the manner in which orders interact with 
the PIXL Auction based on the timing of when the order entered the 
order book. The Exchange's pricing is consistent with its current 
practice of assigning the applicable pricing for auctions versus order 
book pricing depending on how and when the order was submitted to the 
Exchange.
    Assessing unrelated market or marketable interest in SPY received 
prior to a PIXL Auction the simple order book pricing within Options 7, 
Section 3, Part A and the complex order book pricing within Options 7, 
Section 3, Part B is equitable and not unfairly discriminatory because 
all Phlx members and member organizations who submitted unrelated 
market or marketable interest which rested on the order book prior to 
the commencement of a PIXL Auction will be uniformly assessed the 
applicable order book pricing for adding liquidity. The Exchange's 
proposal would treat Phlx members and member organizations who 
submitted unrelated market or marketable interest in SPY which rested 
on the order book prior to the commencement of a PIXL Auction in the 
same manner as other Phlx members and member organizations who posted 
liquidity on the order book as they would both be considered makers of 
liquidity. Conversely, the Exchange assesses the SPY PIXL pricing 
within Options 7, Section 3 in the same manner that responders to the 
PIXL Auction are assessed fees for their PAN responses. The unrelated 
market or marketable interest that received an allocation within the 
PIXL Auction would be uniformly subject to the same fees as those Phlx 
members and member organizations who submitted PAN responses and were 
allocated, thereby receiving a guaranteed execution and potential price 
improvement.
    The Exchange's proposal to amend the rule text in the last sentence 
of the final bullet that is being relocated to footnote 2 to state 
``which was received prior to the PIXL Auction'' instead of 
``established at the initiation of a PIXL auction'' is reasonable, 
equitable and not unfairly discriminatory because the proposed new 
language continues to reflect the intent of the original language.\16\ 
The amended rule text makes clear that the Lead Market Maker or Market 
Maker quote that is being referenced would have been resting on the 
order book prior to the PIXL Order. Today, the rebate is paid to the 
PIXL Order where the Lead Market Maker or Market Maker executes against 
the PIXL Order portion of the paired order as a response. The Exchange 
would apply new footnote 2 uniformly to Customer PIXL Orders.
---------------------------------------------------------------------------

    \16\ See Securities Exchange Act Release No. 80064 (February 24, 
2017), 82 FR 11666 (February 24, 2017) (SR-Phlx-2017-15).
---------------------------------------------------------------------------

Options 7, Section 6
    The Exchange's proposal to amend Options 7, Section 6.A, PIXL 
Pricing to make technical non-substantive rule changes and replace 
certain text with the proposed references within Options 7, Section 1 
is reasonable, equitable and not unfairly discriminatory as it will 
clarify and harmonize the current rule text by utilizing specified 
terms.
    The Exchange's proposal to add a new sentence that states, 
``Unrelated market or marketable interest received prior to a PIXL 
Auction will be assessed the appropriate Options Transaction Charge in 
Options 7, Section 4,'' is reasonable because the proposed rule text 
will describe the manner in which the Exchange prices unrelated market 
or marketable interest received prior to the commencement of a PIXL 
Auction. This new sentence memorializes the current pricing that Phlx 
members and member organizations are assessed for such interest, which 
is order book pricing. The Exchange applies the order book pricing 
within Options 7, Section 4 to interest received prior to the PIXL 
Auction, which is considered unrelated market or marketable interest 
for purposes of the PIXL Auction, because at the time the interest was 
submitted to the order book, the Phlx members and member organizations 
would have known that there was no ongoing PIXL Auction and would not 
expect to be subject to the PIXL pricing. In contrast, the Exchange 
applies PIXL pricing within Options 7, Section 6 to the unrelated 
market or marketable interest when interest arrived during a PIXL 
Auction because Phlx seeks to incentivize Participants to submit PIXL 
Auction Orders to receive a guaranteed execution and potential price 
improvement. Phlx members and member organizations submitting interest 
to the order book during a PIXL Auction are aware that they may be 
allocated in the PIXL Auction. Additionally, the Exchange's pricing 
models for the order book and PIXL Auction each seek to attract 
liquidity to Phlx and reward members and member organizations 
differently for the order flow. To this end, the Exchange's pricing 
considers the manner in which orders interact with the PIXL Auction 
based on the timing of when the order entered the order book. The 
Exchange's pricing is consistent with its current practice of assigning 
the applicable pricing for auctions versus order book pricing depending 
on how and when the order was submitted to the Exchange.
    The Exchange's proposal to add a new sentence that states, 
``Unrelated market or marketable interest received prior to a PIXL 
Auction will be assessed the appropriate Options Transaction Charge in 
Options 7, Section 4,'' is equitable and not unfairly discriminatory 
because all Phlx members and member organizations who submitted 
unrelated market or marketable interest which rested on the order book 
prior to the commencement of a PIXL Auction will be uniformly assessed 
the applicable order book pricing for adding liquidity. The Exchange's 
proposal would treat Phlx members and member organizations who 
submitted unrelated market or marketable interest which rested on the 
order book prior to the commencement of a PIXL Auction in the same 
manner as other Phlx members and member organizations who posted 
liquidity on the order book as they would both be considered makers of 
liquidity. Conversely, the Exchange assesses the SPY PIXL pricing 
within Options 7, Section 3 in the same manner that responders to the 
PIXL Auction are assessed fees for their PAN responses. The unrelated 
market or marketable interest that received an allocation within the 
PIXL Auction would be uniformly subject to the same fees as those Phlx 
members and member organizations who submitted PAN responses and were 
allocated, thereby receiving a guaranteed execution and potential price 
improvement.

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.

[[Page 42122]]

Intermarket Competition
    The proposal does not impose an undue burden on inter-market 
competition. The Exchange believes its proposal remains competitive 
with other options markets and will offer market participants with 
another choice to initiate a price improvement auction. The Exchange 
notes that it operates in a highly competitive market in which market 
participants can readily favor competing venues if they deem fee levels 
at a particular venue to be excessive, or rebate opportunities 
available at other venues to be more favorable. In such an environment, 
the Exchange must continually adjust its fees to remain competitive 
with other exchanges. Because competitors are free to modify their own 
fees in response, and because market participants may readily adjust 
their order routing practices, the Exchange believes that the degree to 
which fee changes in this market may impose any burden on competition 
is extremely limited.
Intramarket Competition
    The Exchange's proposal to amend Options 7, Section 1(c) to 
introduce four new references: ``Initiating Order'', ``PIXL Auction 
Order'', ``PIXL Order'', and ``PIXL Response'' does not impose an undue 
burden on competition because these references will apply in the same 
manner to all PIXL transactions executed on the Exchange.
    Assessing a Customer PIXL Response or unrelated market or 
marketable interest received during a PIXL Auction does not impose an 
undue burden on competition because Customer orders bring valuable 
liquidity to the market, which liquidity benefits other market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts Lead Market Makers 
and Market Makers. An increase in the activity of these market 
participants in turn facilitates tighter spreads, which may cause an 
additional corresponding increase in order flow from other market 
participants.
    Assessing unrelated market or marketable interest within Options 7, 
Section 3, related to SPY, that was received prior to a PIXL Auction 
the simple order book pricing within Options 7, Section 3, Part A and 
the complex order book pricing within Options 7, Section 3, Part B does 
not impose an undue burden on competition because all Phlx members and 
member organizations who submitted unrelated market or marketable 
interest which rested on the order book prior to the commencement of a 
PIXL Auction will be uniformly assessed the applicable order book 
pricing for adding liquidity. The Exchange's proposal would treat Phlx 
members and member organizations who submitted unrelated market or 
marketable interest in SPY which rested on the order book prior to the 
commencement of a PIXL Auction in the same manner as other Phlx members 
and member organizations who posted liquidity on the order book as they 
would both be considered makers of liquidity. Conversely, the Exchange 
assesses the SPY PIXL pricing within Options 7, Section 3 in the same 
manner that responders to the PIXL Auction are assessed fees for their 
PAN responses. The unrelated market or marketable interest that 
received an allocation within the PIXL Auction would be uniformly 
subject to the same fees as those Phlx members and member organizations 
who submitted PAN responses and were allocated, thereby receiving a 
guaranteed execution and potential price improvement. The Exchange 
would apply new footnote 2 uniformly to Customer PIXL Orders.
    The Exchange's proposal to add a new sentence that states, 
``Unrelated market or marketable interest received prior to a PIXL 
Auction will be assessed the appropriate Options Transaction Charge in 
Options 7, Section 4,'' does not impose an undue burden on competition 
because all Phlx members and member organizations who submitted 
unrelated market or marketable interest which rested on the order book 
prior to the commencement of a PIXL Auction will be uniformly assessed 
the applicable order book pricing for adding liquidity. The Exchange's 
proposal would treat Phlx members and member organizations who 
submitted unrelated market or marketable interest which rested on the 
order book prior to the commencement of a PIXL Auction in the same 
manner as other Phlx members and member organizations who posted 
liquidity on the order book as they would both be considered makers of 
liquidity. Conversely, the Exchange assesses the SPY PIXL pricing 
within Options 7, Section 3 in the same manner that responders to the 
PIXL Auction are assessed fees for their PAN responses. The unrelated 
market or marketable interest that received an allocation within the 
PIXL Auction would be uniformly subject to the same fees as those Phlx 
members and member organizations who submitted PAN responses and were 
allocated, thereby receiving a guaranteed execution and potential price 
improvement.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\17\
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please 
include file number SR-Phlx-2023-26 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-2023-26. 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 (https://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

[[Page 42123]]

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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-Phlx-2023-26 and should be 
submitted on or before July 20, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2023-13790 Filed 6-28-23; 8:45 am]
BILLING CODE 8011-01-P


