83 FR 1445 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Granting Accelerated Approval of a Proposed Rule Change To Amend Rule 1059 To Make Permanent a Program That Allows Cabinet Trade Transactions To Take Place at a Price Below $1 Per Option Contract

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 8 (January 11, 2018)

Page Range		1445-1446
FR Document		2018-00304
Federal Register, Volume 83 Issue 8 (Thursday, January 11, 2018)
[Federal Register Volume 83, Number 8 (Thursday, January 11, 2018)]
[Notices]
[Pages 1445-1446]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-00304]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82445; File No. SR-Phlx-2017-99]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Granting 
Accelerated Approval of a Proposed Rule Change To Amend Rule 1059 To 
Make Permanent a Program That Allows Cabinet Trade Transactions To Take 
Place at a Price Below $1 Per Option Contract

January 5, 2018.

I. Introduction

    On November 29, 2017, Nasdaq PHLX LLC (the ``Exchange'' or 
``Phlx'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change amending the Exchange's rules to make permanent a 
program that allows transactions to take place in open outcry trading 
at prices of at least $0 but less than $1 per option contract (``sub-
dollar cabinet trades''). The proposed rule change was published for 
comment in the Federal Register on December 14, 2017.\3\ The Commission 
received no comment letters on the proposed rule change. This order 
approves the proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 82245 (Dec. 8, 
2017), 82 FR 58825 (Dec. 14, 2017) (SR-Phlx-2017-99) (``Notice'').
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II. Description of the Proposed Rule Change

    Prior to 2010, Phlx Rule 1059 (Accommodation Transactions) allowed 
cabinet trade transactions at a price of $1 per option contract to 
occur in open outcry trading for certain options classes.\4\ In 2010, 
the Exchange amended Phlx Rule 1059 on a pilot basis to allow sub-
dollar cabinet trades to take place at prices of at least $0 but less 
than $1 per option contract.\5\ The Exchange now proposes to amend Phlx 
Rule 1059 to make permanent its sub-dollar cabinet trade pilot program, 
which currently is scheduled to expire on January 5, 2018.\6\
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    \4\ See Phlx Rule 1059.
    \5\ See Securities Exchange Act Release No. 63626 (Dec. 30, 
2010), 76 FR 812 (Jan. 6, 2011) (SR-Phlx-2010-185).
    \6\ See Commentary .02 to Phlx Rule 1059. See also Securities 
Exchange Act Release No. 79782 (January 12, 2017), 82 FR 6667 
(January 19, 2017) (SR-Phlx-2017-01).
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    The Exchange permits sub-dollar cabinet trade transactions to be 
traded

[[Page 1446]]

pursuant to the same procedures applicable to $1 cabinet trades, except 
that for sub-dollar cabinet trades (i) bids and offers for opening 
transactions are permitted only to accommodate closing transactions, 
and (ii) transactions in option classes participating in the Penny 
Pilot Program are permitted.\7\ The Exchange believes that ``allowing a 
price of at least $0 but less than $1 better accommodates the closing 
of options positions in series that are worthless or not actively 
traded, particularly when there has been a significant move in the 
price of the underlying security, resulting in a large number of series 
being out-of-the-money.'' \8\
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    \7\ See Commentary .02 to Phlx Rule 1059.
    \8\ Notice, supra note 3, at 58826. The Exchange notes that this 
is especially true for transactions in options classes in the Penny 
Pilot Program, for which cabinet trades are not otherwise permitted. 
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 the Act \9\ and the rules 
and regulations thereunder applicable to a national securities 
exchange.\10\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\11\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, 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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    \9\ 15 U.S.C. 78f.
    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    In the Notice, the Exchange explains that it initially adopted the 
sub-dollar cabinet trade rule on a pilot basis to ``evaluate the 
efficacy of the change and to address any operational issues that might 
arise in processing [c]abinet trades.'' \12\ The Exchange represents 
that at the time it adopted the pilot, its system permitted reporting 
cabinet trades at prices as small as $0.0001, as it does today.\13\ 
Based on its experience with these types of trades, the Exchange 
represents that its system ``allows [c]abinet trades to be processed in 
a manner similar to how all other trades are processed by the 
[E]xchange.'' \14\
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    \12\ See Notice, supra note 3, at 58826.
    \13\ See id.
    \14\ Id. See also id. at 58826 (noting that ``in 2016, there 
were a total of 442 [c]abinet [t]rades'' on the Exchange 
``comprising 244,734 contracts,'' and ``[e]ach contract was executed 
at a price of $0.01.'').
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    In support of making the pilot program permanent, the Exchange 
represents that ``there are no operational issues in processing and 
clearing [c]abinet [t]rades in penny and sub-penny increments.'' \15\ 
The Exchange also represents that ``members and member organizations 
have not raised any concerns with the processing of [c]abinet trades.'' 
\16\ Finally, the Exchange represents that it is ``not aware of the 
Options Clearing Corporation (``OCC'') having operational issues with 
processing [c]abinet trades submitted by the Exchange.'' \17\
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    \15\ See Notice, supra note 3, at 58826.
    \16\ Id.
    \17\ Id.
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    Based on the representations of the Exchange, the Commission 
believes that permanent approval of the sub-dollar cabinet trade pilot 
is consistent with the Act. In particular, the Commission notes that 
the Exchange's system allows it to process cabinet trades in the normal 
course. Further, the Exchange has not observed any issues or concerns 
with sub-dollar cabinet trades at the Exchange level, with and among 
its members, or in processing the trades through OCC. Accordingly, the 
Exchange's rule appears reasonably designed to remove impediments, 
prevent fraudulent and manipulative acts and practices, and foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities. Further, permanent approval will continue 
to provide investors with choice when considering a cabinet trade, 
including the ability to price such trades below $1 per contract.

IV. Accelerated Approval of Proposed Rule Changes

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\18\ to approve the proposed rule changes prior to the 30th day 
after the date of publication of the Notice in the Federal 
Register.\19\ The Commission believes that the proposed rule change 
does not raise novel regulatory issues. The Commission notes that 
earlier this year it approved similar proposed rule changes from NYSE 
Arca, Inc.\20\ and NYSE American LLC (formerly known as NYSE MKT LLC) 
\21\ making permanent sub-dollar cabinet trade pilot programs. The 
Exchange has represented that its system is able to process cabinet 
trades similar to the processing of its other trades, it has not 
experienced any issues processing cabinet trades at the Exchange or 
through OCC, and its members have not expressed concerns. In addition, 
the Commission did not receive any comments on the proposed changes. 
Accordingly, the Commission finds that good cause exists to approve the 
proposed rule changes on an accelerated basis.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ As noted above, the Notice was published for comment in the 
Federal Register on December 14, 2017 and the comment period closed 
on December 29, 2017. Accordingly, the 30th day after publication of 
the Notice is January 13, 2018.
    \20\ See Securities Exchange Act Release No. 80615 (May 5, 
2017), 82 FR 22036 (May 11, 2017) (SR-NYSEArca-2017-24).
    \21\ See Securities Exchange Act Release No. 80616 (May 5, 
2017), 82 FR 22033 (May 11, 2017) (SR-NYSEMKT-2017-13).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-Phlx-2017-99) be, and hereby 
is, approved on an accelerated basis.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00304 Filed 1-10-18; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices 1445

designed to ensure that resting orders change is consistent with the Act. SECURITIES AND EXCHANGE
with an MTS Modifier would not trade Comments may be submitted by any of COMMISSION
through displayed orders or violate the following methods:
[Release No. 34–82445; File No. SR–Phlx–
intra-market priority.
Electronic Comments 2017–99]
C. Self-Regulatory Organization’s • Use the Commission’s internet
Statement on Comments on the Self-Regulatory Organizations; Nasdaq
comment form (http://www.sec.gov/ PHLX LLC; Order Granting Accelerated
Proposed Rule Change Received From rules/sro.shtml); or
Members, Participants, or Others Approval of a Proposed Rule Change
• Send an email to rule-comments@ To Amend Rule 1059 To Make
No written comments were solicited sec.gov. Please include File Number SR– Permanent a Program That Allows
or received with respect to the proposed NYSEAMER–2017–40 on the subject Cabinet Trade Transactions To Take
rule change. line. Place at a Price Below $1 Per Option
III. Date of Effectiveness of the Paper Comments Contract
Proposed Rule Change and Timing for • Send paper comments in triplicate January 5, 2018.
Commission Action to Secretary, Securities and Exchange
Commission, 100 F Street NE, I. Introduction
The Exchange has filed the proposed
rule change pursuant to Section Washington, DC 20549–1090. On November 29, 2017, Nasdaq PHLX
19(b)(3)(A)(iii) of the Act 13 and Rule All submissions should refer to File LLC (the ‘‘Exchange’’ or ‘‘Phlx’’) filed
19b–4(f)(6) thereunder.14 Because the Number SR–NYSEAMER–2017–40. This with the Securities and Exchange
proposed rule change does not: (i) file number should be included on the Commission (‘‘Commission’’), pursuant
Significantly affect the protection of subject line if email is used. To help the to Section 19(b)(1) of the Securities
investors or the public interest; (ii) Commission process and review your Exchange Act of 1934 (‘‘Act’’) 1 and Rule
impose any significant burden on comments more efficiently, please use 19b–4 thereunder,2 a proposed rule
competition; and (iii) become operative only one method. The Commission will change amending the Exchange’s rules
prior to 30 days from the date on which post all comments on the Commission’s to make permanent a program that
it was filed, or such shorter time as the internet website (http://www.sec.gov/ allows transactions to take place in open
Commission may designate, if rules/sro.shtml). Copies of the outcry trading at prices of at least $0 but
consistent with the protection of submission, all subsequent less than $1 per option contract (‘‘sub-
investors and the public interest, the amendments, all written statements dollar cabinet trades’’). The proposed
proposed rule change has become with respect to the proposed rule rule change was published for comment
effective pursuant to Section 19(b)(3)(A) change that are filed with the in the Federal Register on December 14,
of the Act and Rule 19b–4(f)(6)(iii) Commission, and all written 2017.3 The Commission received no
thereunder. communications relating to the comment letters on the proposed rule
A proposed rule change filed under proposed rule change between the change. This order approves the
Rule 19b–4(f)(6) 15 normally does not Commission and any person, other than proposed rule change on an accelerated
become operative prior to 30 days after those that may be withheld from the basis.
the date of the filing. However, pursuant public in accordance with the II. Description of the Proposed Rule
to Rule 19b4(f)(6)(iii),16 the Commission provisions of 5 U.S.C. 552, will be Change
may designate a shorter time if such available for website viewing and
Prior to 2010, Phlx Rule 1059
action is consistent with the protection printing in the Commission’s Public
(Accommodation Transactions) allowed
of investors and the public interest. Reference Room, 100 F Street NE,
cabinet trade transactions at a price of
At any time within 60 days of the Washington, DC 20549 on official
$1 per option contract to occur in open
filing of such proposed rule change, the business days between the hours of
outcry trading for certain options
Commission summarily may 10:00 a.m. and 3:00 p.m. Copies of the
classes.4 In 2010, the Exchange
temporarily suspend such rule change if filing also will be available for
amended Phlx Rule 1059 on a pilot
it appears to the Commission that such inspection and copying at the principal
basis to allow sub-dollar cabinet trades
action is necessary or appropriate in the office of the Exchange. All comments
to take place at prices of at least $0 but
public interest, for the protection of received will be posted without change.
less than $1 per option contract.5 The
investors, or otherwise in furtherance of Persons submitting comments are
Exchange now proposes to amend Phlx
the purposes of the Act. If the cautioned that we do not redact or edit
Rule 1059 to make permanent its sub-
Commission takes such action, the personal identifying information from
dollar cabinet trade pilot program,
Commission shall institute proceedings comment submissions. You should
which currently is scheduled to expire
under Section 19(b)(2)(B) 17 of the Act to submit only information that you wish
on January 5, 2018.6
determine whether the proposed rule to make available publicly. All The Exchange permits sub-dollar
change should be approved or submissions should refer to File cabinet trade transactions to be traded
disapproved. Number SR–NYSEAMER–2017–40 and
should be submitted on or before 1 15 U.S.C. 78s(b)(1).
IV. Solicitation of Comments February 1, 2018. 2 17 CFR 240.19b–4.
Interested persons are invited to For the Commission, by the Division of 3 See Securities Exchange Act Release No. 82245

submit written data, views, and Trading and Markets, pursuant to delegated (Dec. 8, 2017), 82 FR 58825 (Dec. 14, 2017) (SR–
srobinson on DSK9F5VC42PROD with NOTICES

arguments concerning the foregoing, Phlx–2017–99) (‘‘Notice’’).
authority.18 4 See Phlx Rule 1059.
including whether the proposed rule Eduardo A. Aleman, 5 See Securities Exchange Act Release No. 63626

13 15
Assistant Secretary. (Dec. 30, 2010), 76 FR 812 (Jan. 6, 2011) (SR–Phlx–
U.S.C. 78s(b)(3)(A)(iii). 2010–185).
14 17 CFR 240.19b–4(f)(6). [FR Doc. 2018–00306 Filed 1–10–18; 8:45 am]
6 See Commentary .02 to Phlx Rule 1059. See also
15 17 CFR 240.19b–4(f)(6). BILLING CODE 8011–01–P
Securities Exchange Act Release No. 79782 (January
16 17 CFR 240.19b–4(f)(6)(iii).
12, 2017), 82 FR 6667 (January 19, 2017) (SR–Phlx–
17 15 U.S.C. 78s(b)(2)(B). 18 17 CFR 200.30–3(a)(12). 2017–01).

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1446 Federal Register / Vol. 83, No. 8 / Thursday, January 11, 2018 / Notices

pursuant to the same procedures represents that its system ‘‘allows changes from NYSE Arca, Inc.20 and
applicable to $1 cabinet trades, except [c]abinet trades to be processed in a NYSE American LLC (formerly known
that for sub-dollar cabinet trades (i) bids manner similar to how all other trades as NYSE MKT LLC) 21 making
and offers for opening transactions are are processed by the [E]xchange.’’ 14 permanent sub-dollar cabinet trade pilot
permitted only to accommodate closing In support of making the pilot programs. The Exchange has
transactions, and (ii) transactions in program permanent, the Exchange represented that its system is able to
option classes participating in the represents that ‘‘there are no operational process cabinet trades similar to the
Penny Pilot Program are permitted.7 The issues in processing and clearing processing of its other trades, it has not
Exchange believes that ‘‘allowing a price [c]abinet [t]rades in penny and sub- experienced any issues processing
of at least $0 but less than $1 better penny increments.’’ 15 The Exchange cabinet trades at the Exchange or
accommodates the closing of options also represents that ‘‘members and through OCC, and its members have not
positions in series that are worthless or member organizations have not raised expressed concerns. In addition, the
not actively traded, particularly when any concerns with the processing of Commission did not receive any
there has been a significant move in the [c]abinet trades.’’ 16 Finally, the comments on the proposed changes.
price of the underlying security, Exchange represents that it is ‘‘not Accordingly, the Commission finds that
resulting in a large number of series aware of the Options Clearing good cause exists to approve the
being out-of-the-money.’’ 8 Corporation (‘‘OCC’’) having operational proposed rule changes on an accelerated
issues with processing [c]abinet trades basis.
III. Discussion and Commission submitted by the Exchange.’’ 17
Findings Based on the representations of the V. Conclusion
After careful review, the Commission Exchange, the Commission believes that It is therefore ordered, pursuant to
finds that the proposed rule change is permanent approval of the sub-dollar Section 19(b)(2) of the Act,22 that the
consistent with the requirements of the cabinet trade pilot is consistent with the proposed rule change (SR–Phlx–2017–
Act 9 and the rules and regulations Act. In particular, the Commission notes 99) be, and hereby is, approved on an
thereunder applicable to a national that the Exchange’s system allows it to accelerated basis.
securities exchange.10 In particular, the process cabinet trades in the normal For the Commission, by the Division of
Commission finds that the proposed course. Further, the Exchange has not Trading and Markets, pursuant to delegated
rule change is consistent with Section observed any issues or concerns with authority.23
6(b)(5) of the Act,11 which requires, sub-dollar cabinet trades at the Eduardo A. Aleman,
among other things, that the rules of a Exchange level, with and among its Assistant Secretary.
national securities exchange be members, or in processing the trades [FR Doc. 2018–00304 Filed 1–10–18; 8:45 am]
designed to prevent fraudulent and through OCC. Accordingly, the
BILLING CODE 8011–01–P
manipulative acts and practices, to Exchange’s rule appears reasonably
promote just and equitable principles of designed to remove impediments,
trade, to foster cooperation and prevent fraudulent and manipulative SECURITIES AND EXCHANGE
coordination with persons engaged in acts and practices, and foster COMMISSION
regulating, clearing, settling, processing cooperation and coordination with
information with respect to, and persons engaged in facilitating [Release No. 34–82446; File No. SR–ISE–
facilitating transactions in securities, to transactions in securities. Further, 2017–112]
remove impediments to and perfect the permanent approval will continue to
Self-Regulatory Organizations; Nasdaq
mechanism of a free and open market provide investors with choice when
ISE, LLC; Notice of Filing and
and a national market system, and, in considering a cabinet trade, including
Immediate Effectiveness of Proposed
general, to protect investors and the the ability to price such trades below $1
Rule Change To Amend Certain Non-
public interest. per contract.
In the Notice, the Exchange explains Transaction Fees in the Exchange’s
that it initially adopted the sub-dollar IV. Accelerated Approval of Proposed Schedule of Fees
cabinet trade rule on a pilot basis to Rule Changes
January 5, 2018.
‘‘evaluate the efficacy of the change and The Commission finds good cause, Pursuant to Section 19(b)(1) of the
to address any operational issues that pursuant to Section 19(b)(2) of the Securities Exchange Act of 1934
might arise in processing [c]abinet Act,18 to approve the proposed rule (‘‘Act’’),1 and Rule 19b–4 thereunder,2
trades.’’ 12 The Exchange represents that changes prior to the 30th day after the notice is hereby given that on December
at the time it adopted the pilot, its date of publication of the Notice in the 22, 2017, Nasdaq ISE, LLC (‘‘ISE’’ or
system permitted reporting cabinet Federal Register.19 The Commission ‘‘Exchange’’) filed with the Securities
trades at prices as small as $0.0001, as believes that the proposed rule change and Exchange Commission
it does today.13 Based on its experience does not raise novel regulatory issues. (‘‘Commission’’) the proposed rule
with these types of trades, the Exchange The Commission notes that earlier this change as described in Items I and II
year it approved similar proposed rule below, which Items have been prepared
7 See Commentary .02 to Phlx Rule 1059.
8 Notice,
by the Exchange. The Commission is
supra note 3, at 58826. The Exchange 14 Id. See also id. at 58826 (noting that ‘‘in 2016,

notes that this is especially true for transactions in there were a total of 442 [c]abinet [t]rades’’ on the publishing this notice to solicit
options classes in the Penny Pilot Program, for Exchange ‘‘comprising 244,734 contracts,’’ and
which cabinet trades are not otherwise permitted. ‘‘[e]ach contract was executed at a price of $0.01.’’). 20 See Securities Exchange Act Release No. 80615
srobinson on DSK9F5VC42PROD with NOTICES

See id. 15 See Notice, supra note 3, at 58826. (May 5, 2017), 82 FR 22036 (May 11, 2017) (SR–
9 15 U.S.C. 78f. 16 Id. NYSEArca–2017–24).
10 In approving this proposed rule change, the 17 Id. 21 See Securities Exchange Act Release No. 80616

Commission has considered the proposed rule’s 18 15 U.S.C. 78s(b)(2). (May 5, 2017), 82 FR 22033 (May 11, 2017) (SR–
impact on efficiency, competition, and capital 19 As noted above, the Notice was published for NYSEMKT–2017–13).
formation. See 15 U.S.C. 78c(f). comment in the Federal Register on December 14,
22 15 U.S.C. 78s(b)(2).
11 15 U.S.C. 78f(b)(5). 23 17 CFR 200.30–3(a)(12).
2017 and the comment period closed on December
12 See Notice, supra note 3, at 58826. 1 15 U.S.C. 78s(b)(1).
29, 2017. Accordingly, the 30th day after
13 See id. publication of the Notice is January 13, 2018. 2 17 CFR 240.19b–4.

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Document Created: 2018-01-11 04:53:54
Document Modified: 2018-01-11 04:53:54
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		83 FR 1445