82_FR_47781 82 FR 47585 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Order Approving a Proposed Rule Change Relating to Quarterly Trading Requirements

82 FR 47585 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Order Approving a Proposed Rule Change Relating to Quarterly Trading Requirements

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 196 (October 12, 2017)

Page Range47585-47586
FR Document2017-21996

Federal Register, Volume 82 Issue 196 (Thursday, October 12, 2017) 
[Federal Register Volume 82, Number 196 (Thursday, October 12, 2017)]
[Notices]
[Pages 47585-47586]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-21996]



[[Page 47585]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81826; File No. SR-Phlx-2017-67]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Order Approving a 
Proposed Rule Change Relating to Quarterly Trading Requirements

October 5, 2017.

I. Introduction

    On August 3, 2017, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(``Act''),\2\ and Rule 19b-4 thereunder,\3\ a proposed rule change 
regarding quarterly trading requirements applicable to Registered 
Options Traders (``ROTs''). The proposed rule change was published for 
comment in the Federal Register on August 22, 2017.\4\ The Commission 
received no comments on the proposal. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 81409 (August 16, 
2017), 82 FR 39925 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes two amendments to a quarterly trading 
requirement applicable to certain ROTs. ROTs can be either Streaming 
Quote Traders \5\ (``SQTs''), Remote SQTs \6\ (``RSQTs'') or non-SQT 
ROTs.\7\ Currently, Phlx Rule 1014, Commentary .01 requires SQTs and 
non-SQT ROTs, but not RSQTs, to trade 1,000 contracts and 300 
transactions on the Exchange each quarter (excluding transactions 
executed in the trading crowd where the contra-side is an ROT). The 
Exchange proposes to: (1) Apply the quarterly trading requirement only 
to non-SQT ROTs (and no longer to SQTs); and (2) add a new alternative 
standard to meet this requirement. Specifically, the Exchange proposes 
to amend Phlx Rule 1014, Commentary .01 to require only a non-SQT ROT 
to trade either (a) 1,000 contracts and 300 transactions (the ``1000/
300 Alternative,'' which is the current requirement) or (b) 10,000 
contracts and 100 transactions (the ``New Alternative''), on the 
Exchange each quarter.\8\ The Exchange notes that, similar to the 
current 1000/300 Alternative, the New Alternative is a pure trading 
requirement, not limited, like other trading requirements, to assigned 
options \9\ and in person trading.\10\ Accordingly, the Exchange 
proposes that the New Alternative requirement can be fulfilled with 
trades and contracts that are not in assigned options and not executed 
in person, although the existing trading requirements respecting ``in 
assigned'' options and ``in person'' trading must still be met.\11\ In 
addition, the Exchange proposes that limit orders can continue to be 
counted toward either minimum trading requirement.\12\
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    \5\ An SQT is an ROT who has received permission from the 
Exchange to generate and submit option quotations electronically in 
options to which such SQT is assigned. An SQT may only submit such 
quotations while such SQT is physically present on the floor of the 
Exchange. An SQT may only trade in a market making capacity in 
classes of options in which the SQT is assigned. See Phlx Rule 
1014(b)(ii)(A).
    \6\ An RSQT is an ROT that is a member or member organization 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically in options to which such RSQT has been assigned. A 
qualified RSQT may function as a Remote Specialist upon Exchange 
approval. See Phlx Rule 1014(b)(ii)(B).
    \7\ A non-SQT ROT is an ROT who is neither an SQT nor an RSQT. 
See Phlx Rule 1014(b)(ii)(C). The Exchange notes that by definition, 
non-SQT ROTs do not ``stream'' quotes, meaning send quotes 
electronically to the Exchange; instead, pursuant to Commentary .18 
of Phlx Rule 1014, they submit limit orders electronically and 
respond to Floor Brokers verbally. See Notice, supra note 4, at 
39926.
    \8\ Transactions executed in the trading crowd where the contra-
side is an ROT would continue to be ineligible to satisfy this 
quarterly trading requirement. See Notice, supra note 4, at 39927.
    \9\ See Phlx Rule 1014.03.
    \10\ See Phlx Rule 1014.01.
    \11\ See Notice, supra note 4, at 39927.
    \12\ See id. The Exchange states that it is not seeking to 
burden these market participants by limiting the type of qualifying 
transactions eligible to meet the requirement. See id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \13\ 
and the rules and regulations thereunder applicable to the 
Exchange.\14\ Specifically, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\15\ which 
requires, among other things, that the rules of an exchange be designed 
to prevent fraudulent and manipulative acts and practices, 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, 
and not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ In approving these proposed rule changes, the Commission 
has considered the proposed rules' impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the Exchange's proposal to apply the 
quarterly trading requirement only to non-SQT ROTs is consistent with 
the Act. The Exchange has noted that SQTs are subject to continuous 
quoting requirements when trading electronically in their assigned 
series.\16\ In contrast, the Exchange represents that non-SQT ROTs are 
not similarly subject to continuous quoting obligations as they do not 
electronically stream quotes into the Exchange and may only quote 
verbally in response to Floor Brokers representing orders in the 
trading crowd or submit limit orders electronically.\17\ Accordingly, 
the Exchange believes that, because SQTs are already subject to 
continuous quoting obligations, it is appropriate to exclude them from 
the quarterly trading requirement and to impose obligations in a manner 
consistent with their business model.\18\ The Commission therefore 
believes that this aspect of the proposal is reasonably designed to 
preserve the market making function performed by ROTs and to ensure 
that ROTs continue to provide adequate liquidity to the Exchange, while 
applying standards that reflect the differing operating models of SQTs 
and non-SQT ROTs. Accordingly, the Commission believes that the 
Exchange's proposal to amend Phlx Rule 1014, Commentary .01 to apply 
the quarterly trading requirement only to non-SQT ROTs is consistent 
with Section 6(b)(5) of the Act in that it is reasonably designed to 
help promote just and equitable principles of trade, and to protect 
investors and the public interest, and is not designed to permit unfair 
discrimination.
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    \16\ See Notice, supra note 4, at 39927.
    \17\ See id. at 39926 and 39928.
    \18\ See id. at 39928.
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    The Commission also believes that the Exchange's proposed amendment 
to create the New Alternative quarterly trading requirement is 
consistent with the Act. The Exchange represents that in recent years 
it has observed lower trading volumes on its floor, as well as 
increased use of mechanisms such as the Qualified Contingent Cross 
(``QCC'') mechanism for larger orders, in which non-SQT ROTs may not 
submit responses.\19\ The Exchange notes that it has also become 
difficult for non-SQT ROTs to meet the 1000/300 Alternative because 
non-SQT ROTs do not stream quotes electronically, but instead quote 
verbally in response to Floor Brokers representing orders in the 
trading

[[Page 47586]]

crowd, where they cannot control the size or frequency of trading 
interest.\20\ The Exchange asserts that the New Alternative serves as a 
reasonable standard by which to assess the level of liquidity provided 
by non-SQT ROTs, albeit with a focus on an additional liquidity metric 
of fewer trades that are larger in size.\21\ The Exchange states that, 
since 100 transactions is only 33% of the current requirement, it 
proposes to increase the total number of executed contracts requirement 
in the New Alternative by 900 percent to 10,000 contracts, so as not to 
dilute the overall trading requirement.\22\ The Commission therefore 
believes that the Exchange's proposal should continue to encourage 
active market making and thereby promote the provision of liquidity to 
the market. The Commission also notes that non-SQT ROTs continue to 
have the option of complying with the current requirement (i.e., the 
1000/300 Alternative) if they so choose. Accordingly, the Commission 
believes that the Exchange's proposed amendments to create the New 
Alternative standard to satisfy the quarterly trading requirement is 
reasonably designed to preserve the market making function performed by 
non-SQT ROTs and thereby serves to maintain a fair and orderly market 
and should remove impediments to and perfect the mechanism of a free 
and open market and a national market system and help protect investors 
and the public interest, consistent with Section 6(b)(5) of the Act.
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    \19\ See id. at 39927 and 39928.
    \20\ See id. at 39928.
    \21\ See id. at 39927 and 39928.
    \22\ See id. at 39927.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\23\ that the proposed rule change (SR-Phlx-2017-67), be, and hereby 
is, approved.
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    \23\ 15 U.S.C. 78s(b)(2).
    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-21996 Filed 10-11-17; 8:45 am]
 BILLING CODE 8011-01-P

Federal Register / Vol. 82, No. 196 / Thursday, October 12, 2017 / Notices 47585 SECURITIES AND EXCHANGE contra-side is an ROT). The Exchange public interest, and not be designed to COMMISSION proposes to: (1) Apply the quarterly permit unfair discrimination between trading requirement only to non-SQT customers, issuers, brokers, or dealers. [Release No. 34–81826; File No. SR–Phlx– The Commission believes that the ROTs (and no longer to SQTs); and (2) 2017–67] add a new alternative standard to meet Exchange’s proposal to apply the Self-Regulatory Organizations; this requirement. Specifically, the quarterly trading requirement only to NASDAQ PHLX LLC; Order Approving Exchange proposes to amend Phlx Rule non-SQT ROTs is consistent with the a Proposed Rule Change Relating to 1014, Commentary .01 to require only a Act. The Exchange has noted that SQTs Quarterly Trading Requirements non-SQT ROT to trade either (a) 1,000 are subject to continuous quoting contracts and 300 transactions (the requirements when trading October 5, 2017. ‘‘1000/300 Alternative,’’ which is the electronically in their assigned series.16 current requirement) or (b) 10,000 In contrast, the Exchange represents that I. Introduction contracts and 100 transactions (the non-SQT ROTs are not similarly subject On August 3, 2017, NASDAQ PHLX ‘‘New Alternative’’), on the Exchange to continuous quoting obligations as LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with each quarter.8 The Exchange notes that, they do not electronically stream quotes the Securities and Exchange similar to the current 1000/300 into the Exchange and may only quote Commission (‘‘Commission’’), pursuant Alternative, the New Alternative is a verbally in response to Floor Brokers to Section 19(b)(1) 1 of the Securities pure trading requirement, not limited, representing orders in the trading crowd Exchange Act of 1934 (‘‘Act’’),2 and like other trading requirements, to or submit limit orders electronically.17 Rule 19b–4 thereunder,3 a proposed rule assigned options 9 and in person Accordingly, the Exchange believes that, change regarding quarterly trading trading.10 Accordingly, the Exchange because SQTs are already subject to requirements applicable to Registered proposes that the New Alternative continuous quoting obligations, it is Options Traders (‘‘ROTs’’). The requirement can be fulfilled with trades appropriate to exclude them from the proposed rule change was published for and contracts that are not in assigned quarterly trading requirement and to comment in the Federal Register on options and not executed in person, impose obligations in a manner August 22, 2017.4 The Commission although the existing trading consistent with their business model.18 received no comments on the proposal. requirements respecting ‘‘in assigned’’ The Commission therefore believes that This order approves the proposed rule options and ‘‘in person’’ trading must this aspect of the proposal is reasonably change. still be met.11 In addition, the Exchange designed to preserve the market making proposes that limit orders can continue function performed by ROTs and to II. Description of the Proposal to be counted toward either minimum ensure that ROTs continue to provide The Exchange proposes two adequate liquidity to the Exchange, trading requirement.12 amendments to a quarterly trading while applying standards that reflect the requirement applicable to certain ROTs. III. Discussion and Commission differing operating models of SQTs and ROTs can be either Streaming Quote Findings non-SQT ROTs. Accordingly, the Traders 5 (‘‘SQTs’’), Remote SQTs 6 After careful review, the Commission Commission believes that the (‘‘RSQTs’’) or non-SQT ROTs.7 finds that the proposed rule change is Exchange’s proposal to amend Phlx Currently, Phlx Rule 1014, Commentary consistent with the requirements of Rule 1014, Commentary .01 to apply the .01 requires SQTs and non-SQT ROTs, Section 6 of the Act 13 and the rules and quarterly trading requirement only to but not RSQTs, to trade 1,000 contracts regulations thereunder applicable to the non-SQT ROTs is consistent with and 300 transactions on the Exchange Exchange.14 Specifically, the Section 6(b)(5) of the Act in that it is each quarter (excluding transactions Commission finds that the proposed reasonably designed to help promote executed in the trading crowd where the rule change is consistent with Section just and equitable principles of trade, 6(b)(5) of the Act,15 which requires, and to protect investors and the public 1 15 U.S.C. 78s(b)(1). among other things, that the rules of an interest, and is not designed to permit 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. exchange be designed to prevent unfair discrimination. 4 See Securities Exchange Act Release No. 81409 fraudulent and manipulative acts and The Commission also believes that the (August 16, 2017), 82 FR 39925 (‘‘Notice’’). practices, to promote just and equitable Exchange’s proposed amendment to 5 An SQT is an ROT who has received permission principles of trade, to remove create the New Alternative quarterly from the Exchange to generate and submit option impediments to and perfect the trading requirement is consistent with quotations electronically in options to which such the Act. The Exchange represents that in SQT is assigned. An SQT may only submit such mechanism of a free and open market quotations while such SQT is physically present on and a national market system, and, in recent years it has observed lower the floor of the Exchange. An SQT may only trade general, to protect investors and the trading volumes on its floor, as well as in a market making capacity in classes of options increased use of mechanisms such as in which the SQT is assigned. See Phlx Rule 8 Transactions executed in the trading crowd the Qualified Contingent Cross (‘‘QCC’’) 1014(b)(ii)(A). 6 An RSQT is an ROT that is a member or member where the contra-side is an ROT would continue to mechanism for larger orders, in which be ineligible to satisfy this quarterly trading non-SQT ROTs may not submit organization with no physical trading floor requirement. See Notice, supra note 4, at 39927. presence who has received permission from the 9 See Phlx Rule 1014.03. responses.19 The Exchange notes that it Exchange to generate and submit option quotations 10 See Phlx Rule 1014.01. has also become difficult for non-SQT electronically in options to which such RSQT has 11 See Notice, supra note 4, at 39927. ROTs to meet the 1000/300 Alternative asabaliauskas on DSKBBXCHB2PROD with NOTICES been assigned. A qualified RSQT may function as a Remote Specialist upon Exchange approval. See 12 See id. The Exchange states that it is not because non-SQT ROTs do not stream Phlx Rule 1014(b)(ii)(B). seeking to burden these market participants by quotes electronically, but instead quote 7 A non-SQT ROT is an ROT who is neither an limiting the type of qualifying transactions eligible verbally in response to Floor Brokers SQT nor an RSQT. See Phlx Rule 1014(b)(ii)(C). The to meet the requirement. See id. 13 15 U.S.C. 78f(b). representing orders in the trading Exchange notes that by definition, non-SQT ROTs 14 In approving these proposed rule changes, the do not ‘‘stream’’ quotes, meaning send quotes 16 See electronically to the Exchange; instead, pursuant to Commission has considered the proposed rules’ Notice, supra note 4, at 39927. 17 See id. at 39926 and 39928. Commentary .18 of Phlx Rule 1014, they submit impact on efficiency, competition, and capital limit orders electronically and respond to Floor formation. See 15 U.S.C. 78c(f). 18 See id. at 39928. Brokers verbally. See Notice, supra note 4, at 39926. 15 15 U.S.C. 78f(b)(5). 19 See id. at 39927 and 39928. VerDate Sep<11>2014 22:35 Oct 11, 2017 Jkt 244001 PO 00000 Frm 00140 Fmt 4703 Sfmt 4703 E:\FR\FM\12OCN1.SGM 12OCN1

47586 Federal Register / Vol. 82, No. 196 / Thursday, October 12, 2017 / Notices crowd, where they cannot control the SECURITIES AND EXCHANGE comments it received on the proposed size or frequency of trading interest.20 COMMISSION rule change. The text of these statements The Exchange asserts that the New may be examined at the places specified [Release No. 34–81824; File No. SR–FINRA– Alternative serves as a reasonable 2017–031] in Item IV below. FINRA has prepared standard by which to assess the level of summaries, set forth in sections A, B, liquidity provided by non-SQT ROTs, Self-Regulatory Organizations; and C below, of the most significant albeit with a focus on an additional Financial Industry Regulatory aspects of such statements. liquidity metric of fewer trades that are Authority, Inc.; Notice of Filing and A. Self-Regulatory Organization’s larger in size.21 The Exchange states Immediate Effectiveness of a Proposed Statement of the Purpose of, and that, since 100 transactions is only 33% Rule Change To Amend FINRA Rule Statutory Basis for, the Proposed Rule of the current requirement, it proposes 6121 To Reflect Recent Amendments Change to increase the total number of executed to the Regulation NMS Plan To contracts requirement in the New Address Extraordinary Market 1. Purpose Alternative by 900 percent to 10,000 Volatility FINRA Rule 6121.01 (Resumption of contracts, so as not to dilute the overall October 5, 2017. Trading in Securities Subject to the trading requirement.22 The Commission Pursuant to Section 19(b)(1) of the Regulation NMS Plan to Address therefore believes that the Exchange’s Securities Exchange Act of 1934 Extraordinary Market Volatility) proposal should continue to encourage (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 (‘‘Rule’’) addresses the circumstances active market making and thereby notice is hereby given that on under which a member may resume promote the provision of liquidity to the September 29, 2017, Financial Industry trading otherwise than on an exchange market. The Commission also notes that Regulatory Authority, Inc. (‘‘FINRA’’) following a Trading Pause or Regulatory non-SQT ROTs continue to have the filed with the Securities and Exchange Halt in an NMS Stock that is subject to option of complying with the current Commission (‘‘SEC’’ or ‘‘Commission’’) the Plan. requirement (i.e., the 1000/300 the proposed rule change as described in Items I, II, and III below, which Items The Rule currently provides that, Alternative) if they so choose. following a Trading Pause or Regulatory Accordingly, the Commission believes have been prepared by FINRA. FINRA has designated the proposed rule change Halt in an NMS Stock that is subject to that the Exchange’s proposed the Plan, a member may resume trading as constituting a ‘‘non-controversial’’ amendments to create the New otherwise than on an exchange if rule change under paragraph (f)(6) of Alternative standard to satisfy the Rule 19b–4 under the Act,3 which trading has commenced on the Primary quarterly trading requirement is renders the proposal effective upon Listing Exchange (or on another national reasonably designed to preserve the receipt of this filing by the Commission. securities exchange in the case of the market making function performed by The Commission is publishing this resumption of trading following a ten- non-SQT ROTs and thereby serves to notice to solicit comments on the minute Trading Pause) and either: (1) maintain a fair and orderly market and proposed rule change from interested The member has received the Price should remove impediments to and persons. Bands from the Processor; or (2) if perfect the mechanism of a free and immediately following a Trading Pause I. Self-Regulatory Organization’s open market and a national market or Regulatory Halt the member has not Statement of the Terms of Substance of system and help protect investors and yet received the Price Bands from the the Proposed Rule Change the public interest, consistent with Processor, the member has calculated an Section 6(b)(5) of the Act. FINRA is proposing to amend FINRA upper price band and lower price band Rule 6121 (Trading Halts Due to consistent with the methodology IV. Conclusion Extraordinary Market Volatility) to provided for in Section V of the Plan reflect recent amendments to the and ensures that any transactions prior It is therefore ordered, pursuant to Regulation NMS Plan to Address Section 19(b)(2) of the Act 23 that the to the receipt of the Price Bands from Extraordinary Volatility (‘‘Plan’’) the Processor are within the ranges proposed rule change (SR–Phlx–2017– regarding the resumption of trading in a 67), be, and hereby is, approved. provided for pursuant to the Plan. In security subject to the Plan.4 addition, the Rule provides that, where For the Commission, by the Division of The text of the proposed rule change the Primary Listing Exchange does not Trading and Markets, pursuant to delegated is available on FINRA’s Web site at reopen for trading at the end of a ten- authority.24 http://www.finra.org, at the principal minute Trading Pause (and has issued Eduardo A. Aleman, office of FINRA and at the notice that it cannot resume trading for Commission’s Public Reference Room. Assistant Secretary. a reason other than a significant [FR Doc. 2017–21996 Filed 10–11–17; 8:45 am] II. Self-Regulatory Organization’s imbalance), a member may resume BILLING CODE 8011–01–P Statement of the Purpose of, and trading otherwise than on an exchange Statutory Basis for, the Proposed Rule if trading has commenced in such NMS Change Stock on at least one other national In its filing with the Commission, securities exchange. FINRA included statements concerning On January 19, 2017, the Commission asabaliauskas on DSKBBXCHB2PROD with NOTICES the purpose of and basis for the approved the Twelfth Amendment to proposed rule change and discussed any the Plan, which provides, among other things, that a Trading Pause will 20 See id. at 39928. 1 15 U.S.C. 78s(b)(1). continue until the Primary Listing 2 17 CFR 240.19b–4. 21 See id. at 39927 and 39928. Exchange has reopened trading using its 3 17 CFR 240.19b–4(f)(6). 22 See id. at 39927. 4 Unless otherwise specified, the capitalized established reopening procedures, even 23 15 U.S.C. 78s(b)(2). terms used herein have the same meanings as set if such reopening is more than 10 24 17 CFR 200.30–3(a)(12). forth in the Plan. minutes after the beginning of a Trading VerDate Sep<11>2014 22:35 Oct 11, 2017 Jkt 244001 PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 E:\FR\FM\12OCN1.SGM 12OCN1


Document Created: 2018-10-25 10:04:05
Document Modified: 2018-10-25 10:04:05
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 47585 
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