83 FR 14690 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing of Proposed Rule Change To Create a New Rule 1081, To Amend Electronic Market Maker Obligations and Quoting Requirements for Electronic ROTs, Which Will Be Defined To Include SQTs, RSQTs, Directed SQTs, Directed RSQTs, Specialists, and Remote Specialists
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 66 (April 5, 2018)
Federal Register Volume 83, Issue 66 (April 5, 2018)
| Page Range | 14690-14696 | |
| FR Document | 2018-06916 |
[Federal Register Volume 83, Number 66 (Thursday, April 5, 2018)] [Notices] [Pages 14690-14696] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-06916] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82975; File No. SR-Phlx-2018-22] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing of Proposed Rule Change To Create a New Rule 1081, To Amend Electronic Market Maker Obligations and Quoting Requirements for Electronic ROTs, Which Will Be Defined To Include SQTs, RSQTs, Directed SQTs, Directed RSQTs, Specialists, and Remote Specialists March 30, 2018. 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 March 20, 2018, Nasdaq PHLX LLC (``Phlx'' or the ``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 create a new Rule 1081, to amend electronic quoting for electronic ROTs, which will be defined to include SQTs, RSQTs, Directed SQTs, Directed RSQTs, Specialists and Remote Specialists. The text of the proposed rule change is available on the Exchange's website at http://nasdaqphlx.cchwallstreet.com/, 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this rule change is to reserve the current quoting obligations in Phlx Rule 1014(b)(ii)(D) and adopt new Phlx Rule 1081, which is currently reserved, to amend the current obligations of electronic ROTs on Phlx. The Exchange proposes to entitle Phlx Rule 1081, ``Electronic Market Maker Obligations and Quoting'' and adopt certain rule text similar to NASDAQ BX, Inc. (``BX'') Rules at Chapter VII, Section 5 and quoting obligations similar to BX Rules at Chapter VII, Section 6which [sic] describes the obligations of market makers. The Exchange notes that these obligations apply to quotations by of [sic] SQTs, RSQTs, Directed SQTs, Directed RSQTs, Specialists (hereinafter, ``electronic ROTs'') electronically through the Exchange's System.\3\ The Exchange notes that quotes submitted electronically by a Specialist, while on the trading floor, into the Exchange's System, would qualify toward the Specialist requirement. All Specialists are subject to the requirements of Phlx Rule 1081. Similarly all RSQTs are subject to the requirements of Phlx Rule 1081 as RSQTs by definition have no physical trading floor presence. SQTs by definition may generate and submit option quotations electronically in options to which such SQT is assigned while such SQT is physically present on the floor of the Exchange. The SQTs quotations are subject to the obligations contained in Rule 1081. Non-SQT ROTs \4\ are not subject to the quoting requirements in proposed Rule 1081, rather they are subject to quarterly trading requirements which are specified in Commentary .01 to Phlx Rule 1014. --------------------------------------------------------------------------- \3\ System is defined at Phlx Rule 1000(b)(45). \4\ A non-SQT ROT is an ROT who is neither an SQT nor an RSQT. See Rule 1014(b)(ii)(C). By definition, non-SQT ROTs do not ``stream'' quotes, meaning send quotes electronically to the Exchange; instead, pursuant to Commentary .18 of Rule 1014, they submit limit orders electronically and respond to Floor Brokers verbally. --------------------------------------------------------------------------- The Exchange proposes to adopt new sections (a) and (b) of Phlx Rule 1081 to specify the various obligations of electronic ROTs on Phlx. In registering as an electronic ROT, member organization [sic] commits to various obligations. Generally, the Exchange proposes to indicate that an electronic ROT's transactions, in its market making capacity,\5\ must constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and those member organizations should not make bids or offers or enter into transactions that are inconsistent with such course of dealings. The Exchange also proposes to note, similar to BX Rules at Chapter VII, Section 5(b) that electronic ROTs should not effect purchases or sales except in a reasonable and orderly manner. While this rule text is not explicitly noted in Phlx Rule 1014, the rule does today note at Phlx Rule 1014(a) that transactions of a Specialist and a ROT should constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and those members should not enter into transactions or make bids or offers that are inconsistent with such a course of dealings. --------------------------------------------------------------------------- \5\ Electronic ROTs are permitted to enter orders on Phlx as permitted in Rule 1080(b)(i)(B). Orders are not considered market making activity for purposes of fulfilling quoting or the other obligations of an electronic ROT which are proposed herein. --------------------------------------------------------------------------- Proposed Phlx Rule 1081(a) provides, ordinarily during trading hours,\6\ an electronic ROT must: (i) Maintain a two-sided market in those options in which the electronic ROT is registered to trade, in a manner that enhances the depth, liquidity and competitiveness of the market; (ii) engage, to a reasonable degree under the existing circumstances, in dealings for its own account when there exists, or it is reasonably anticipated that there will exist, a lack of price continuity, a temporary disparity between the supply of (or demand for) a particular option contract, or a temporary distortion of price relationships between option contracts of the same class; (iii) compete [[Page 14691]] with other electronic ROTs in all options in all capacities \7\ in which the electronic ROT is registered to trade; (iv) make markets that will be honored for the number of contracts entered into Phlx's System in all options in which the electronic ROT is registered to trade; (v) update quotations in response to changed market conditions in all options in which the electronic ROT is registered to trade; (v) maintain active markets in all options in which the electronic ROT is registered; and (vi) honor all orders attributed to the electronic ROT that the System routes to away markets pursuant to Rule 1080(m).\8\ --------------------------------------------------------------------------- \6\ The Exchange notes that a trading halt may cause the obligations of electronic ROTs to be suspended because the market is not open for trading. The Exchange intends that the obligations of an electronic ROT will be in effect when the Exchange is open for trading as specified in the Exchange's Rules. \7\ For example, competing as a Specialist and as an SQT, depending on the various capacities of market marking in which the electronic ROT is engaged. \8\ Proposed Phlx Rule 1081(a)(i)-(vii) are similar to BX Rules at Chapter VII, Section 5(a). --------------------------------------------------------------------------- Similar to BX Rules at Chapter VII, Section 5(c), Phlx proposes in Phlx Rule 1081(b) to provide, ``If Phlx Regulation finds any substantial or continued failure to engage in a course of dealings as specified in paragraph (a) of this section, the electronic ROT will be subject to disciplinary action or suspension or revocation of registration in one or more of the securities in which the electronic ROT is registered. Nothing in this rule will limit any other power of the Board under these Rules, or procedures of Phlx with respect to the registration of an ROT or in respect of any violation by an ROT pursuant to this rule.'' \9\ The Exchange believes that the addition of these obligations will provide additional context as to the obligations of electronic ROTs on Phlx. --------------------------------------------------------------------------- \9\ The Exchange notes that an electronic ROT may be found to have violated other by-laws and rules of the Exchange which are separate and apart from these obligations. The Exchange has added this rule text to make clear that the obligations noted within this rule are not an exclusive list. --------------------------------------------------------------------------- Current Quoting Requirements The Exchange proposes to amend the current market making quoting obligations at Phlx Rule 1014(b)(ii)(D)(1). Currently, Phlx requires that in addition to the other requirements for ROTs set forth in Rule 1014, with some exceptions (e.g., when an RSQT functions as a Remote Specialist in particular options) \10\ an SQT and an RSQT are responsible to quote two-sided markets in not less than 60% of the series in which such SQT or RSQT is assigned, provided that, on any given day, a Directed SQT (``DSQT'') or a Directed RSQT (``DRSQT'') are responsible to quote two-sided markets in the lesser of 99% of the series listed on the Exchange or 100% of the series listed on the Exchange minus one call-put pair,\11\ in each case in at least 60% of the options in which such DSQT or DRSQT is assigned. Further, whenever a DSQT or DRSQT enters a quotation in an option in which such DSQT or DRSQT is assigned, such DSQT or DRSQT must maintain until the close of that trading day quotations for the lesser of 99% of the series of the option listed on the Exchange or 100% of the series of the option listed on the Exchange minus one call-put pair. The rule also states that to satisfy the applicable quoting requirements with respect to quoting a series, an SQT, RSQT, DSQT, or DRSQT must quote such series 90% of the trading day (as a percentage of the total number of minutes in such trading day) or such higher percentage as the Exchange may announce in advance.\12\ The rule notes that these obligations apply collectively to all appointed issues of an SQT, RSQT, DSQT, or DRSQT, rather than on an issue-by-issue basis. Compliance with this obligation is determined on a monthly basis. However, determining compliance with the continuous quoting requirement on a monthly basis does not relieve an SQT, RSQT, DSQT, or DRSQT of the obligation to provide continuous two-sided quotes on a daily basis, nor does it prohibit the Exchange from taking disciplinary action against an SQT, RSQT, DSQT, or DRSQT for failing to meet the continuous quoting obligation each trading day. Finally, the Exchange may consider exceptions to the requirement to quote 90% (or higher) of the trading day based on demonstrated legal or regulatory requirements or other mitigating circumstances. --------------------------------------------------------------------------- \10\ Electronic Specialists have different quoting obligations currently in Phlx's rule which will be described in more detail in this proposal. Also, SQTs, DSQTs, RSQTs and DRSQTs are deemed not to be assigned in any Quarterly Option Series, any adjusted option series, and any option series until the time to expiration for such series is less than nine months. \11\ A ``call-put pair'' refers to one call and one put that cover the same underlying instrument and have the same expiration date and exercise price. See Rule 1014(b)(ii)(D)(6). \12\ See Phlx Rule 1014(b)(ii)(D)(1). --------------------------------------------------------------------------- Currently, with respect to a Specialist, Phlx Rule 1014(b)(ii)(D)(2) requires the Specialist (including the RSQT functioning as a Remote Specialist in particular options) quote two- sided markets in the lesser of 99% of the series or 100% of the series minus one call-put pair in each option in which such Specialist is assigned. To satisfy the requirement of this subparagraph (D)(2) with respect to quoting a series, the Specialist must quote such series 90% of the trading day (as a percentage of the total number of minutes in such trading day) or such higher percentage as the Exchange may announce in advance. These obligations apply collectively to all appointed issues of the Specialist, rather than on an issue-by-issue basis. Compliance with this obligation is determined on a monthly basis. However, determining compliance with the continuous quoting requirement on a monthly basis does not relieve the Specialist (including the RSQT functioning as a Remote Specialist in particular options) of the obligation to provide continuous two-sided quotes on a daily basis, nor does it prohibit the Exchange from taking disciplinary action against the Specialist (including the RSQT functioning as a Remote Specialist in particular options) for failing to meet the continuous quoting obligation each trading day. Finally, the Exchange may consider exceptions to the requirement to quote 90% (or higher) of the trading day based on demonstrated legal or regulatory requirements or other mitigating circumstances. Currently, Phlx Rule 1014(b)(ii)(D)(3) provides that SQTs, RSQTs and the Specialist assigned in an option shall submit electronic quotations with a size of not less than the minimum number of contracts determined by the Exchange on a class by class basis, which minimum shall be at least one contract. Phlx Rule 1014(b)(ii)(D)(4) provides that notwithstanding the foregoing, SQTs, DSQTs, RSQTs \13\ and DRSQTs shall be deemed not to be assigned in any Quarterly Option Series, any adjusted option series,\14\ and any option series until the time to expiration for such series is less than nine months. Thus, the quoting obligations described above do not apply to SQTs, DSQTs, RSQTs and DRSQTs respecting Quarterly Option Series, Adjusted Option Series, and series with an expiration of nine months or greater. Phlx Rule 1014(b)(ii)(D)(5) provides that if a technical failure or limitation of a System of the Exchange prevents a participant from maintaining, or prevents a participant from communicating to the Exchange, timely and accurate quotes, the duration of such failure or limitation shall not be included in any of the calculations under Rule 1014(b)(ii)(D) with respect to the affected quotes. --------------------------------------------------------------------------- \13\ This provision does not apply to RSQTs when they are functioning as Remote Specialists in particular options. \14\ Phlx defines an adjusted option series as an option series wherein one option contract in the series represents the delivery of other than 100 shares of underlying stock or Exchange-Traded Fund Shares (``Adjusted Options Series''). --------------------------------------------------------------------------- [[Page 14692]] Proposed Quoting Requirements The Exchange proposes to amend its electronic quoting requirements at proposed Phlx Rule 1081(c). The Exchange notes that electronic ROTs must enter bids and offers for the options to which it is registered, except in an assigned options series listed intra-day on the Exchange. The Exchange notes that intra-day [sic] add of a series would be counted the following trading day (next business day after the intra- day add of a series was listed) when the option series would be available for a full trading day.\15\ Today, an electronic ROT is not held to quote an intra-day add of a series because the options series was not available for trading the entire day. The Exchange is adding this exception to the rule text to make clear that electronic ROTs would not be responsible for quoting an intra-day addition. The Exchange believes that not counting intra-day adds of a series that were not available for the entire day of trading is consistent with the Act because the electronic ROT would not have the opportunity to trade that particular options series for the entire trading day. --------------------------------------------------------------------------- \15\ An intra-day add of a series shall be defined, for purposes of this Rule 1081, as an option series that is added manually on the same day the series begins trading. --------------------------------------------------------------------------- Further, the proposed rule text notes, as is the case today, on a daily basis an SQT and RSQT would be obligated to meet certain quoting requirements. An SQT or RSQT who is also the Specialist will be held to the Specialist obligations in options series in which the Specialist is assigned and will be held to SQT and RSQT obligations in all other options series where assigned. An SQT or RSQT who receives a Directed Order shall be held to the standard of a Directed SQT or Directed RSQT, as appropriate. This is the case today, although the current rule text does not state specifically that each obligation is separate. The Exchange's proposed rule text at Phlx Rule 1081(c) is not contained in the current rule, but is the current practice on Phlx. This additional detail is being added to the text of the proposed rule to further clarify the manner in which the quoting obligations are applied. With respect to electronic ROTs, similar to the existing Phlx language at Phlx Rule 1014(b)(ii)(D)(3), the Exchange proposes to continue to require the best bid and best offer entered by an electronic ROT to have a size of not less than the minimum number of contracts determined by the Exchange on a class by class basis, which minimum shall be at least one (1) contract. Further, the rule text specifies at Phlx Rule 1081(c)(i) that an electronic ROT's bid and offer for a series of options contracts shall be accompanied by the number of contracts at that price the electronic ROT is willing to buy or sell.\16\ This language is similar to BX Rules at Chapter VII, Section 6(a). Today, Phlx Rule 1014(b)(ii)(D)(3) requires SQTs, RSQTs and the Specialist assigned in such option to submit electronic quotations with a size of not less than the minimum number of contracts determined by the Exchange on a class by class basis, which minimum shall be at least one contract. The Exchange is not introducing a new concept with this proposed language, rather the Exchange is retaining its current language regarding minimum size. The BX Rule differs from the Phlx Rule in this regard. BX's Rule Provides that a Participant ``must have a size of at least one (1) contract'' without reference to BX setting a minimum number. Phlx's Rule is generally similar to BX, except Phlx is retaining its rule text which permits the Exchange to determine the minimum number of contracts. The proposed rule text states, ``The best bid and best offer submitted by an electronic ROT must have a size of not less than the minimum number of contracts determined by the Exchange on a class by class basis, which minimum shall be at least one (1) contract.'' Today, an electronic ROT's bid and offer for a series of options contracts is quoted at a price for the number of contracts the electronic ROT is willing to buy or sell. --------------------------------------------------------------------------- \16\ See proposed Phlx Rule 1081(c)(i). --------------------------------------------------------------------------- The Exchange proposes language at Phlx Rule 1081(c)(ii) that requires an electronic ROT that enters a bid (offer) in a series of an option in which he is registered on Phlx to enter an offer (bid).\17\ This requirement to maintain a two-sided quote is similar to what is required today on Phlx.\18\ The Exchange does not propose to amend the manner in which this provision is currently applied to an electronic ROT. --------------------------------------------------------------------------- \17\ See proposed Phlx Rule 1081(c)(ii). \18\ See Phlx Rule 1014(b)(ii)(D)(1). This requirement is also similar to BX Rules at Chapter VII, Section 6(b). --------------------------------------------------------------------------- Proposed Phlx Rule 1081(c)(ii)(A) provides that SQTs and RSQTs, associated with the same member organization, are collectively required to provide two-sided quotations in 60% of the cumulative number of seconds, or such higher percentage as Phlx may announce in advance, for which that member organization's assigned options series are open for trading. The Exchange includes proposed rule text at Phlx Rule 1081(c)(ii)(D), which provides that the obligation at Phlx Rule 1081(c)(ii)(A) would be calculated by (i) taking the total number of seconds the member organization disseminates quotes in each assigned options series, excluding Quarterly Option Series, any Adjusted Option Series, and any option series with an expiration of nine months or greater for SQTs, RSQTs, Directed SQTs and Directed RSQTs; and (ii) dividing that time by the eligible total number of seconds each assigned option series is open for trading that day. SQTs and RSQTs would not be required to quote Quarterly Option Series, any Adjusted Options Series, and any option series with an expiration of nine months or greater. Further, the rule text notes that quoting is not required in every assigned options series. Compliance with this requirement is determined by reviewing the aggregate of quoting in assigned options series for the member organization.\19\ Proposed Phlx Rule 1081(c)(ii)(A) also provides, similar to today, that notwithstanding the foregoing, a member organization shall not be required to make two- sided markets pursuant to 1081(c)(ii) in any Quarterly Option Series, any Adjusted Options Series, and any option series with an expiration of nine months or greater.\20\ --------------------------------------------------------------------------- \19\ See Phlx Rule 1081(c)(ii)(D). \20\ This is similar to Phlx Rule 1014(b)(ii)(D)(4). The Exchange is utilizing the phrase ``series with an expiration of nine months or greater'' in this version simply for clarity and to conform to the current BX language at BX Rules at Chapter VII at Section 6. Once the options series had less than nine months of expiration, the electronic ROT would be required to commence quoting the options series if appointed in that options series. --------------------------------------------------------------------------- The current Phlx rule requires SQTs and RSQTs to quote 60% of the series 90% of the trading day.\21\ By comparison, the proposed rule change, which is similar to BX's Rule at Chapter VII, Section 6(d)(i)(1) [sic].\22\ The SQTs and RSQTs may quote any combination of series, and does not necessarily have to quote every assigned options series. Similar to today, these quotations must continue to meet the legal quote width requirements specified in Phlx Rule 1014(c)(i)(A)(1) and (2). The proposal better accommodates the occasional issues that may arise in a particular series, whether technical or manual. The existing requirement may at times discourage liquidity in particular options series because an electronic ROT is forced to focus on a momentary lapse, rather than using the appropriate resources to focus on the options series that need and consume additional liquidity. --------------------------------------------------------------------------- \21\ See Phlx Rule 1014(b)(ii)(D)(1). \22\ See proposed Phlx Rule 1081(c)(ii)(A) and (D). --------------------------------------------------------------------------- [[Page 14693]] The Exchange is defining an Adjusted Options Series as an option series wherein one option contract in the series represents the delivery of other than 100 shares of underlying stock or Exchange- Traded Fund Shares. This definition at Proposed Phlx Rule 1081(c)(ii)(A)(i) is the same definition that is currently in Phlx Rule 1014(b)(ii)(D)(4). Proposed Phlx Rule 1081(c)(ii)(B) provides that Specialists (including Remote Specialists), associated with the same member organization, are collectively required to provide two-sided quotations in 90% of the cumulative number of seconds, or such higher percentage as Phlx may announce in advance, for which that member organization's assigned options series are open for trading. The Exchange includes proposed rule text at Phlx Rule 1081(c)(ii)(D), which provides that the obligation at Phlx Rule 1081(c)(ii)(B) would be calculated by (i) taking the total number of seconds the member organization disseminates quotes in each assigned options series; and (ii) dividing that time by the eligible total number of seconds each assigned option series is open for trading that day. Further, the rule text notes that quoting is not required in every assigned options series.\23\ Compliance with this requirement is determined by reviewing the aggregate of quoting in assigned options series for the member organization.\24\ The [sic] proposal to quote in aggregate all of assigned series 90% of the trading day would align Phlx's Rule to that of BX. --------------------------------------------------------------------------- \23\ See proposed Phlx Rule 1081(c)(ii)(B) and (D). \24\ See Phlx Rule 1081(c)(ii)(D). --------------------------------------------------------------------------- This is an amendment from the current Phlx requirement which requires a Specialist to quote two-sided markets in the lesser of 99% of the series or 100% of the series minus one call-put pair in each option in which the Specialist is assigned. Today, the Specialist must quote such series 90% of the trading day (as a percentage of the total number of minutes in such trading day) or such higher percentage as the Exchange may announce in advance.\25\ The Exchange desires to lower the requirement to conform to BX's requirement for Lead Market Makers, the equivalent of Phlx's Specialists, at BX Rules at Chapter VII, Section 14(f). As is the case today, these quotations must meet the legal quote width requirements specified in Phlx Rule 1014(c)(i)(A)(1) and (2). The Exchange notes that Specialists continue to have heightened quoting requirements as compared to electronic ROTs, which heightened obligations allow for the Specialist to receive certain participation rights.\26\ The participation rights reward Specialists for making markets and providing other market participants an incentive to quote aggressively. --------------------------------------------------------------------------- \25\ See Phlx Rule 1014(b)(ii)(D)(2). \26\ See Phlx Rule 1014(g)(vii)(B)(1)(c). --------------------------------------------------------------------------- Today, Phlx Rule 1014(b)(ii)(D)(4) provides an exception from the quoting obligations in Quarterly Option Series, Adjusted Options Series, and any option series until the time for expiration for such series is less than nine months, for SQTs, DSQTs, RSQTs, and DRSQTs. This exception does not apply to Specialists or Remote Specialists because they are not listed as an excepted class. The Exchange's proposal continues to require Specialists and Remote Specialists to quote in Quarterly Option Series, Adjusted Options Series, and any option series until the time for expiration for such series is less than nine months where assigned.\27\ This rule text does not conform to BX Rules at Chapter VII, Section 14. A BX Lead Market Maker is not required to quote Quarterly Options Series, Adjusted Options Series, or any series with a time to expiration of nine months or greater. --------------------------------------------------------------------------- \27\ See Phlx Rule 1081(c)(ii)(B). --------------------------------------------------------------------------- Proposed Phlx Rule 1081(c)(ii)(C) provides Directed SQTs and Directed RSQTs, associated with the same member organization, are collectively required to provide two-sided quotations in 90% of the cumulative number of seconds, or such higher percentage as Phlx may announce in advance, for which that member organization's assigned options series are open for trading. The Exchange includes proposed rule text at Phlx Rule 1081(c)(ii)(D), which provides that the obligation at Phlx Rule 1081(c)(ii)(C) would be calculated by (i) taking the total number of seconds the member organization disseminates quotes in each assigned options series, excluding Quarterly Option Series, any Adjusted Options Series, and any option series with an expiration of nine months or greater for SQTs, RSQTs, Directed SQTs and Directed RSQTs; and (ii) dividing that time by the eligible total number of seconds each assigned option series is open for trading that day. Further, the rule text notes that quoting is not required in every assigned options series.\28\ Compliance with this requirement is determined by reviewing the aggregate of quoting in assigned options series for the member organization.\29\ Notwithstanding the foregoing, a member organization shall not be required to make two-sided markets pursuant to 1081(c)(ii) in any Quarterly Option Series, any Adjusted Options Series, and any option series with an expiration of nine months or greater.\30\ This provision is not being amended and is similar to the current Phlx rule and BX Rules at Chapter VII, Section 15(iv).\31\ These quotations must meet the legal quote width requirements specified in Phlx Rule 1014(c)(i)(A)(1) and (2). --------------------------------------------------------------------------- \28\ See proposed Phlx Rule 1081(c)(ii)(C) and (D). \29\ See Phlx Rule 1081(c)(ii)(D). \30\ As noted herein, for purposes of this Rule, an adjusted option series is defined as an option series wherein one option contract in the series represents the delivery of other than 100 shares of underlying stock or Exchange-Traded Fund Shares (``Adjusted Options Series''). Once the options series had less than nine months of expiration, the electronic ROT would be required to commence quoting the options series if appointed in that options series. \31\ This is similar to Phlx Rule 1014(b)(ii)(D)(4). The Exchange is utilizing the phrase ``series with an expiration of nine months or greater'' in this version simply for clarity. This provision, which refers to any series with an expiration of nine months or greater, is the same measure utilized today on Phlx, however, it is phrased different [sic]. --------------------------------------------------------------------------- The proposed provisions amend the current Phlx requirement which requires a Directed ROT to quote two-sided markets in the lesser of 99% of the series listed on the Exchange or 100% of the series listed on the Exchange minus one call-put pair, in each case in at least 60% of the options in which such DSQT or DRSQT is assigned. Whenever a DSQT or DRSQT enters a quotation in an option in which such DSQT or DRSQT is assigned, such DSQT or DRSQT must maintain until the close of that trading day quotations for the lesser of 99% of the series of the option listed on the Exchange or 100% of the series of the option listed on the Exchange minus one call-put pair. The Exchange desires to lower the requirement to conform to BX's requirement for Directed Market Makers in BX Rules at Chapter VII, Section 15(iii). The Exchange notes that Directed SQTs and Directed RSQTs continue to have heightened quoting requirements as compared to electronic ROTs, which heightened obligations allow for the Directed SQTs and Directed RSQTs to receive certain participation rights.\32\ The enhanced participation rights reward Directed SQTs and Directed RSQTs for making markets and providing other market participants an incentive to quote aggressively. --------------------------------------------------------------------------- \32\ See Phlx Rule 1014(g)(viii)(B)(1) [sic]. --------------------------------------------------------------------------- For purposes of the quoting obligations specified in proposed Rule 1081(c)(ii)(C) a member organization shall be considered directed in all assigned options once the member organization receives a Directed Order in any option in which they are [[Page 14694]] assigned and shall be considered a Directed SQT or Directed RSQT until such time as the member organization notifies the Exchange that they are no longer directed.\33\ The Exchange notes that if a member desired to become a Directed SQT that this obligation would commence when that Directed SQT executed an order directed to the Directed SQT. For example if on March 15, 2018 at 3:00 p.m. SQT A received its first directed order, the quoting obligations would begin at that time (3:00 p.m.) and would continue until such time as SQT A informed Nasdaq [sic] Operations that it no longer desired to be directed. If a Directed SQT or Directed RSQT no longer desired to participate in the Directed Order program the Exchange would not permit the Directed SQT or Directed [sic] to receive an enhanced allocation pursuant to Rule 1014(g)(viii).\34\ A Directed SQT's or Directed RSQT's quoting obligations would cease at such time as the member organization contacted Nasdaq [sic] Operations indicating the firm no longer desired to participate as a Directed SQT or a Directed RSQT. --------------------------------------------------------------------------- \33\ A member organization that desires not to be directed would contact the Exchange's Operations desk. \34\ Once the Nasdaq [sic] Operations desk was contacted, Nasdaq [sic] staff would take steps to remove the ability of the member organization to be allocated as a Directed SQT or a Directed RSQT. --------------------------------------------------------------------------- As is the case today, Phlx Regulation may consider exceptions to the above-referenced requirement to quote based on demonstrated legal or regulatory requirements or other mitigating circumstances. For purposes of the Exchange's surveillance of member organization compliance with this rule, the Exchange may determine compliance on a monthly basis. The Exchange's monthly compliance evaluation of the quoting requirement does not relieve a member organization of the obligation to provide two-sided quotes on a daily basis, nor will it prohibit the Exchange from taking disciplinary action against a member organization for failing to meet the quoting obligation each trading day.\35\ Further, as is the case today, if a technical failure or limitation of a System of Phlx prevents a member organization from maintaining, or prevents a member organization from communicating to Phlx timely and accurate quotes, the duration of such failure or limitation shall not be included in any of the calculations under subparagraph (c)(ii) of proposed Rule 1081 with respect to the affected quotes.\36\ --------------------------------------------------------------------------- \35\ See Phlx Rule 1014(b)(ii)(D)(1) and (2). \36\ See Phlx Rule 1014(b)(ii)(D)(5). --------------------------------------------------------------------------- Example for calculating quoting for an electronic ROT: Market Maker firm A (``MM A'') has Badges 1, 2 and 3. MM A has permission to quote underlying U which has options U1, U2, U3, U4, and U5. MM A also has permission to quote underlyings V and W. Option U1 opened at 09:30:30 and closed at 16:00:39 Badge 1 quoted U1 at 09:35:30 @13.00(10)-15.00(10) Badge 1 updated quote in U1 at 09:50:31 @10.00(10)-15.00(20) Badge 1 purged quote at 15:55:40 Total quoted time for U1 is: 15:55:40-09:35:30 = (15-9)*3600 + (55- 35)*60 + (40-30) = 22810 (seconds) Total available quote time for U1 is: 16:00:39-09:30:30 = (15-9)*3600 + (60-30)*60 + (39-30) = 23409 (seconds) Option U2 opened at 09:30:32 and closed at 16:00:29 Badge 2 quoted U2 at 10:05:30 @13.00(10)-15.00(10) Badge 2 updated quote in U2 at 11:00:01 @11.00(10)-16.00(20) Badge 2 purged quote at 15:05:40 Total quoted time for U2 is: 15:05:40-10:05:30 = (14-10)*3600 + (65- 05)*60 + (40-30)= 18010 (seconds) Total available quote time for U2 is: 16:00:29-09:30:32 = (15-9)*3600 + (59-30)*60 + (89-32) = 23397 (seconds) Option U3 opened at 09:40:02 and closed at 16:01:20 Badge 3 quoted U3 at 11:10:21 @21.00(10)-24.00(20) Badge 3 purged quote at 15:00:05 Total quoted time for U3 is: 15:00:05-11:10:21 = (14-11)*3600 + (59- 10)*60 + (65-21) = 13784 (seconds) Total available quote time for U3 is: 16:01:20-09:40:02 = (15-9)*3600 + (61-40)*60 + (20-2) = 22878 (seconds) Option U4 opened at 9:30:01 and closed at 16:00:20 Badge 1, 2 and 3 all quoted option U4: Badge 1 quoted U4 at 09:38:59 @35.00(10)-37.00(10) Badge 1 updated quote in U4 at 10:30:21 @31.00(10)-37.00(20) Badge1 purged quote in U4 at 15:45:00 Badge 2 quoted U4 at 09:34:29 @35.00(10)-37.00(10) Badge 2 purged quote at 15:35:55 Badge 3 quoted U4 at 10:33:21 @36.00(10)-38.00(20) Badge 3 purged quote at 15:59:34 Since Badge 2 began quoting U4 at the earliest time, this time is used for the total quote time determination. Similarly, MM A's Badge 3 was last to purge his quote in U4 so this purge time is used for the total quote time determination. Total quoted time for U4 is: 15:59:34-09:34:29 = (15-09)*3600 + (59- 34)*60 + (34-29) = 23105 (seconds) Total available quote time is: 16:00:20-09:30:01 = (15-9)*3600 + (60- 30)*60 + (20-1) = 23419 (seconds) Option U5 opened at 9:30:11 and closed at 16:00:23 No MM A badges quoted U5 thus, the total quoted time for U5 will be: 0 (seconds) Total available quote time is: 16:00:23-09:30:11 = (15-9)*3600 + (60- 30)*60 + (23-11) = 23412 (seconds) The Total quote percentage for MM A is: Total time for MM A quoted underlying U: 22810 + 18010 + 13784 + 23105 + 0 = 77709 (seconds) Total eligible quoting time for MM A on underlying U: 23409 + 23397 + 22878 + 23419 + 23412 = 116515 (seconds) Similarly assume: Total time for MM A quoted underlying V: 70983(seconds) Total eligible quoting time for MM A on underlying V: 84515 (seconds) Total time for MM A quoted underlying W: 0(seconds) Total eligible quoting time for MM A on underlying W: 46513 (seconds) Then the total quoting percentage for MM A is: (77709 + 70983 + 0) / (116515 + 84515 + 46513) = 148692/247543 = 60.07% 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\37\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\38\ in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest for the reasons stated below. --------------------------------------------------------------------------- \37\ 15 U.S.C. 78f(b). \38\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that its proposed rule change provides further detail as to obligations of electronic ROTs on Phlx. The Exchange's proposed obligations, which are similar to BX Rules at Chapter VII, Section 5, delineate examples of the type of activity that constitutes a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market. This proposal is consistent with the Act because it removes impediments to and perfects the mechanism of a free and open market and a national market system by [[Page 14695]] imposing obligations on market makers with respect to making markets on Phlx. While under the proposal there are quoting requirements changes, the Exchange does not believe that these changes reduce the overall obligations applicable to electronic ROTs.\39\ Moreover, the Exchange believes that the proposal may increase market making activity on the Exchange and the quality of the Exchange's market by establishing quoting compliance standards that are reasonable and already in place on other options exchanges.\40\ --------------------------------------------------------------------------- \39\ In this respect, the Exchange notes that electronic ROTs are subject to many obligations aside from quoting, including, for example, the obligation to maintain a fair and orderly market in their appointed classes, and the obligation to conduct the opening and enter continuous quotations in all of the series of their appointed options classes within maximum spread requirements. \40\ See BX Rules at Chapter VII at Section 6. --------------------------------------------------------------------------- With respect to the quoting obligations, the Exchange's proposal seeks to conform the quoting obligations to that of BX's Rules.\41\ The Exchange is amending the quoting obligations for electronic ROTs to lower the obligations. Phlx's current quoting requirements are much more stringent than certain other exchanges. Quoting two-sided markets in not less than 60% of the series in which such SQT or RSQT is assigned and also for a Specialist (including Remote Specialist), Directed SQT or Directed SQT [sic] quoting two-sided markets in the lesser of 99% of the series or 100% of the series minus one call-put pair in each option in which such Specialist is assigned, 90% of the trading day (as a percentage of the total number of minutes in such trading day) or such higher percentage as the Exchange may announce, is much more stringent than looking at all options in which an electronic ROT is registered, because it [sic] allows for some number of series not to be quoted at all, as long as the overall standard is met. This better accommodates the occasional issues that may arise in a particular series, whether technical or manual. The existing requirement may at times discourage liquidity in particular options series because an electronic ROT is forced to focus on a momentary lapse rather than using the appropriate resources to focus on the options series that need and consume additional liquidity. Phlx believes that it can better attract electronic ROTs and grow its market if its quoting obligation is more in line with that of other exchanges. --------------------------------------------------------------------------- \41\ See BX Rules at Chapter VII at Sections 6, 14 and 15. The proposed rule text is different than the BX rule text with respect to quoting obligations, however the computation of the quoting obligations will be the same as BX's computations today. --------------------------------------------------------------------------- The Exchange's proposal that SQTs and RSQTs, associated with the same member organization, are collectively required to provide two- sided quotations in 60% of the cumulative number of seconds, or such higher percentage as Phlx may announce in advance, for which that member organization's assigned options series are open for trading seeks to promote just and equitable principles of trade, and to foster cooperation and coordination with persons engaged in facilitating transactions in securities by aligning Phlx's Rules with quoting obligations on BX. The Exchange notes that electronic ROTs are required to abide by the Exchange's obligations in order to contribute to the maintenance of a fair and orderly market. The proposal supports the quality of the Exchange's market by helping to ensure that electronic ROTs will continue to be obligated to quote in a percentage of their assigned series. Ultimately, the benefit the proposed rule change confers upon electronic ROTs is offset by the continued responsibilities to provide significant liquidity to the market to the benefit of market participants. Despite the reduction, the Exchange believes that the proposed rule text is consistent with the Act because the quoting obligations are similar to quoting obligations on BX today.\42\ Determining compliance with the continuous quoting requirement on a monthly basis would not relieve an electronic ROT from the obligation to quote two-sided quotes for 60% of the cumulative number of seconds on a daily basis, nor would it prohibit the Exchange from taking disciplinary action against an electronic ROT for failing to meet the quoting obligation each trading day. For these reasons, the Exchange believes that the proposed changes to the quoting obligations are consistent with the Act. Further, the proposed changes to the quoting obligations for electronic ROTs are consistent with market maker obligations in place on BX as noted herein.\43\ --------------------------------------------------------------------------- \42\ See BX Rules at Chapter VII at Sections 6, 14 and 15. \43\ Id. --------------------------------------------------------------------------- Further, the Exchange's proposal to amend the quoting obligations for Specialists and electronic Directed SQTs and Directed RSQTs is consistent with the Act because despite lowering the current obligations, the Exchange continues to impose higher quoting obligations on Specialists and electronic Directed SQTs and Directed RSQTs as compared to SQTs and RSQTs because they are entitled to certain allocation benefits that other ROTs are not entitled to today. Phlx Rule 1014(g)(vii) provides for the allocation method for electronic ROTs on Phlx after the Specialist Participation Entitlement has been applied and Phlx Rule 1014(g)(viii) provides for the allocation method in the case of directed orders to the electronic Directed SQT and Directed RSQT, and such allocation will depend on the number of electronic ROTs present. The Specialist receives an entitlement after all Customer orders have been fully executed provided the Specialist's bid/offer is at or improves on the Exchange's disseminated price and up to the Specialist's displayed size.\44\ A DSQT or a DRSQT shall be allocated a participation entitlement as specified in Phlx Rule 1014(g)(viii)(B)(1) and (2). The Exchange notes that Specialists and Directed SQTs and Directed RSQTs continue to have heightened quoting requirements as compared to electronic ROTs, which heightened obligations allow for the Specialist, Directed SQTs and Directed RSQTs to receive certain enhanced participation rights.\45\ The enhanced participation rights reward Specialists, Directed SQTs and Directed RSQTs for making markets and providing other market participants an incentive to quote aggressively. While electronic ROTs will be subject to lower quoting requirements as compared to Specialists and electronic Directed SQTs and Directed RSQTs, they will also be entitled to lower allocations. The Exchange believes that the proposed rule text is consistent with the Act because the obligations are commensurate with the ability to achieve certain allocations. The Exchange believes that its proposal will continue to align SQTS and RSQTs, Specialists and electronic Directed SQTs and Directed RSQTs accordingly. Also, the proposal will align with quoting requirements on BX today.\46\ --------------------------------------------------------------------------- \44\ The Specialist Participation Entitlement shall be 60% of remaining interest if there is one other ROT at that price. The Specialist Participation Entitlement shall be 40% of remaining interest if there are two ROTs at that price. Finally, the Specialist Participation Entitlement 30% of remaining interest if there are more than two other ROTs at that price. See Phlx Rule 1014(g)(vii)(B)(1)(c) and 1014(g)(ii). \45\ See Phlx Rule 1014(g)(vii)(B)(1)(c) and (g)(viii)(B)(1) [sic]. \46\ See BX Rules at Chapter VII at Sections 6, 14 and 15. --------------------------------------------------------------------------- Finally the proposed rule text serves to provide more specificity to members regarding the manner in which quoting obligations are calculated. [[Page 14696]] 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. Electronic ROTs will continue to be entitled to certain allocations, similar to today. Electronic ROTs, unlike other market participants, have obligations which the Exchange has memorialized within the proposed rule text. The Exchange believes that treating Electronic ROTs differently than other market participants does not impose an undue burden on competition because Electronic ROTs provide liquidity to the market which benefits market participants who interact with that liquidity. The Exchange requires Electronic ROTs today to maintain fair and orderly markets. The Exchange believes the allocation benefits are commensurate with the quoting obligations imposed on Electronic ROTs. Additionally, the Exchange believes that the varying quoting requirements as between electronic ROTs and Specialists and electronic Directed SQTs and Directed RSQTs does not impose an undue burden on competition because while electronic ROTs will be subject to lower quoting requirements as compared to Specialists and electronic Directed SQTs and Directed RSQTs, they will also be entitled to lower allocations. 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be 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 CommentsUse the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-Phlx-2018-22 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-2018-22. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2018-22, and should be submitted on or before April 26, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\47\ --------------------------------------------------------------------------- \47\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo Aleman, Assistant Secretary. [FR Doc. 2018-06916 Filed 4-4-18; 8:45 am] BILLING CODE 8011-01-P
![14690 Federal Register / Vol. 83, No. 66 / Thursday, April 5, 2018 / Notices
2018, made final distributions to its and at the Commission’s Public requirements in proposed Rule 1081,
shareholders based on net asset value. Reference Room. rather they are subject to quarterly
Expenses of $3,515,501.43 incurred in trading requirements which are
II. Self-Regulatory Organization’s
connection with the reorganization were specified in Commentary .01 to Phlx
Statement of the Purpose of, and
paid by the applicant, the applicant’s Rule 1014.
Statutory Basis for, the Proposed Rule The Exchange proposes to adopt new
investment adviser, the acquiring fund,
Change sections (a) and (b) of Phlx Rule 1081 to
and the acquiring fund’s investment
adviser. In its filing with the Commission, the specify the various obligations of
Filing Date: The application was filed Exchange included statements electronic ROTs on Phlx. In registering
on March 19, 2018. concerning the purpose of and basis for as an electronic ROT, member
Applicant’s Address: 6300 Lamar the proposed rule change and discussed organization [sic] commits to various
Avenue, Overland Park, Kansas 66202 any comments it received on the obligations. Generally, the Exchange
For the Commission, by the Division of proposed rule change. The text of these proposes to indicate that an electronic
Investment Management, pursuant to statements may be examined at the ROT’s transactions, in its market making
delegated authority. places specified in Item IV below. The capacity,5 must constitute a course of
Eduardo Aleman, Exchange has prepared summaries, set dealings reasonably calculated to
Assistant Secretary. forth in sections A, B, and C below, of contribute to the maintenance of a fair
[FR Doc. 2018–06910 Filed 4–4–18; 8:45 am]
the most significant aspects of such and orderly market, and those member
statements. organizations should not make bids or
BILLING CODE 8011–01–P
A. Self-Regulatory Organization’s offers or enter into transactions that are
Statement of the Purpose of, and the inconsistent with such course of
SECURITIES AND EXCHANGE Statutory Basis for, the Proposed Rule dealings. The Exchange also proposes to
COMMISSION Change note, similar to BX Rules at Chapter VII,
Section 5(b) that electronic ROTs should
[Release No. 34–82975; File No. SR–Phlx– 1. Purpose not effect purchases or sales except in
2018–22]
The purpose of this rule change is to a reasonable and orderly manner. While
Self-Regulatory Organizations; Nasdaq reserve the current quoting obligations this rule text is not explicitly noted in
PHLX LLC; Notice of Filing of in Phlx Rule 1014(b)(ii)(D) and adopt Phlx Rule 1014, the rule does today note
Proposed Rule Change To Create a new Phlx Rule 1081, which is currently at Phlx Rule 1014(a) that transactions of
New Rule 1081, To Amend Electronic reserved, to amend the current a Specialist and a ROT should
Market Maker Obligations and Quoting obligations of electronic ROTs on Phlx. constitute a course of dealings
Requirements for Electronic ROTs, The Exchange proposes to entitle Phlx reasonably calculated to contribute to
Which Will Be Defined To Include Rule 1081, ‘‘Electronic Market Maker the maintenance of a fair and orderly
SQTs, RSQTs, Directed SQTs, Directed Obligations and Quoting’’ and adopt market, and those members should not
RSQTs, Specialists, and Remote certain rule text similar to NASDAQ BX, enter into transactions or make bids or
Specialists Inc. (‘‘BX’’) Rules at Chapter VII, Section offers that are inconsistent with such a
5 and quoting obligations similar to BX course of dealings.
March 30, 2018. Rules at Chapter VII, Section 6which Proposed Phlx Rule 1081(a) provides,
Pursuant to Section 19(b)(1) of the [sic] describes the obligations of market ordinarily during trading hours,6 an
Securities Exchange Act of 1934 makers. The Exchange notes that these electronic ROT must: (i) Maintain a two-
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 obligations apply to quotations by of sided market in those options in which
notice is hereby given that on March 20, [sic] SQTs, RSQTs, Directed SQTs, the electronic ROT is registered to trade,
2018, Nasdaq PHLX LLC (‘‘Phlx’’ or the Directed RSQTs, Specialists in a manner that enhances the depth,
‘‘Exchange’’) filed with the Securities (hereinafter, ‘‘electronic ROTs’’) liquidity and competitiveness of the
and Exchange Commission (‘‘SEC’’ or electronically through the Exchange’s market; (ii) engage, to a reasonable
‘‘Commission’’) the proposed rule System.3 The Exchange notes that degree under the existing
change as described in Items I, II, and quotes submitted electronically by a circumstances, in dealings for its own
III below, which Items have been Specialist, while on the trading floor, account when there exists, or it is
prepared by the Exchange. The into the Exchange’s System, would reasonably anticipated that there will
Commission is publishing this notice to qualify toward the Specialist exist, a lack of price continuity, a
solicit comments on the proposed rule requirement. All Specialists are subject temporary disparity between the supply
change from interested persons. to the requirements of Phlx Rule 1081. of (or demand for) a particular option
contract, or a temporary distortion of
I. Self-Regulatory Organization’s Similarly all RSQTs are subject to the
price relationships between option
Statement of the Terms of Substance of requirements of Phlx Rule 1081 as
contracts of the same class; (iii) compete
the Proposed Rule Change RSQTs by definition have no physical
trading floor presence. SQTs by
The Exchange proposes to create a meaning send quotes electronically to the
definition may generate and submit Exchange; instead, pursuant to Commentary .18 of
new Rule 1081, to amend electronic option quotations electronically in Rule 1014, they submit limit orders electronically
quoting for electronic ROTs, which will options to which such SQT is assigned and respond to Floor Brokers verbally.
be defined to include SQTs, RSQTs, while such SQT is physically present on
5 Electronic ROTs are permitted to enter orders on
Directed SQTs, Directed RSQTs, Phlx as permitted in Rule 1080(b)(i)(B). Orders are
the floor of the Exchange. The SQTs not considered market making activity for purposes
Specialists and Remote Specialists. quotations are subject to the obligations of fulfilling quoting or the other obligations of an
amozie on DSK30RV082PROD with NOTICES
The text of the proposed rule change electronic ROT which are proposed herein.
contained in Rule 1081. Non-SQT
is available on the Exchange’s website at 6 The Exchange notes that a trading halt may
ROTs 4 are not subject to the quoting
http://nasdaqphlx.cchwallstreet.com/, cause the obligations of electronic ROTs to be
at the principal office of the Exchange, suspended because the market is not open for
3 System is defined at Phlx Rule 1000(b)(45). trading. The Exchange intends that the obligations
4A non-SQT ROT is an ROT who is neither an of an electronic ROT will be in effect when the
1 15 U.S.C. 78s(b)(1). SQT nor an RSQT. See Rule 1014(b)(ii)(C). By Exchange is open for trading as specified in the
2 17 CFR 240.19b–4. definition, non-SQT ROTs do not ‘‘stream’’ quotes, Exchange’s Rules.
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![14692 Federal Register / Vol. 83, No. 66 / Thursday, April 5, 2018 / Notices
Proposed Quoting Requirements at Phlx Rule 1081(c)(i) that an electronic that the obligation at Phlx Rule
The Exchange proposes to amend its ROT’s bid and offer for a series of 1081(c)(ii)(A) would be calculated by (i)
electronic quoting requirements at options contracts shall be accompanied taking the total number of seconds the
proposed Phlx Rule 1081(c). The by the number of contracts at that price member organization disseminates
Exchange notes that electronic ROTs the electronic ROT is willing to buy or quotes in each assigned options series,
must enter bids and offers for the sell.16 This language is similar to BX excluding Quarterly Option Series, any
options to which it is registered, except Rules at Chapter VII, Section 6(a). Adjusted Option Series, and any option
in an assigned options series listed Today, Phlx Rule 1014(b)(ii)(D)(3) series with an expiration of nine months
intra-day on the Exchange. The requires SQTs, RSQTs and the or greater for SQTs, RSQTs, Directed
Exchange notes that intra-day [sic] add Specialist assigned in such option to SQTs and Directed RSQTs; and (ii)
of a series would be counted the submit electronic quotations with a size dividing that time by the eligible total
following trading day (next business day of not less than the minimum number number of seconds each assigned option
after the intra-day add of a series was of contracts determined by the Exchange series is open for trading that day. SQTs
listed) when the option series would be on a class by class basis, which and RSQTs would not be required to
available for a full trading day.15 Today, minimum shall be at least one contract. quote Quarterly Option Series, any
an electronic ROT is not held to quote The Exchange is not introducing a new Adjusted Options Series, and any option
an intra-day add of a series because the concept with this proposed language, series with an expiration of nine months
options series was not available for rather the Exchange is retaining its or greater. Further, the rule text notes
trading the entire day. The Exchange is current language regarding minimum that quoting is not required in every
adding this exception to the rule text to size. The BX Rule differs from the Phlx assigned options series. Compliance
make clear that electronic ROTs would Rule in this regard. BX’s Rule Provides with this requirement is determined by
not be responsible for quoting an intra- that a Participant ‘‘must have a size of reviewing the aggregate of quoting in
day addition. The Exchange believes at least one (1) contract’’ without assigned options series for the member
that not counting intra-day adds of a reference to BX setting a minimum organization.19 Proposed Phlx Rule
series that were not available for the number. Phlx’s Rule is generally similar 1081(c)(ii)(A) also provides, similar to
entire day of trading is consistent with to BX, except Phlx is retaining its rule today, that notwithstanding the
the Act because the electronic ROT text which permits the Exchange to foregoing, a member organization shall
would not have the opportunity to trade determine the minimum number of not be required to make two-sided
that particular options series for the contracts. The proposed rule text states, markets pursuant to 1081(c)(ii) in any
entire trading day. ‘‘The best bid and best offer submitted Quarterly Option Series, any Adjusted
Further, the proposed rule text notes, by an electronic ROT must have a size Options Series, and any option series
as is the case today, on a daily basis an of not less than the minimum number with an expiration of nine months or
SQT and RSQT would be obligated to of contracts determined by the Exchange greater.20
meet certain quoting requirements. An on a class by class basis, which The current Phlx rule requires SQTs
SQT or RSQT who is also the Specialist minimum shall be at least one (1) and RSQTs to quote 60% of the series
will be held to the Specialist obligations contract.’’ Today, an electronic ROT’s 90% of the trading day.21 By
in options series in which the Specialist bid and offer for a series of options comparison, the proposed rule change,
is assigned and will be held to SQT and contracts is quoted at a price for the which is similar to BX’s Rule at Chapter
RSQT obligations in all other options number of contracts the electronic ROT VII, Section 6(d)(i)(1) [sic].22 The SQTs
series where assigned. An SQT or RSQT is willing to buy or sell. and RSQTs may quote any combination
who receives a Directed Order shall be The Exchange proposes language at of series, and does not necessarily have
held to the standard of a Directed SQT Phlx Rule 1081(c)(ii) that requires an to quote every assigned options series.
or Directed RSQT, as appropriate. This electronic ROT that enters a bid (offer) Similar to today, these quotations must
is the case today, although the current in a series of an option in which he is continue to meet the legal quote width
rule text does not state specifically that registered on Phlx to enter an offer requirements specified in Phlx Rule
each obligation is separate. The (bid).17 This requirement to maintain a 1014(c)(i)(A)(1) and (2). The proposal
Exchange’s proposed rule text at Phlx two-sided quote is similar to what is better accommodates the occasional
Rule 1081(c) is not contained in the required today on Phlx.18 The Exchange issues that may arise in a particular
current rule, but is the current practice does not propose to amend the manner series, whether technical or manual.
on Phlx. This additional detail is being in which this provision is currently The existing requirement may at times
added to the text of the proposed rule applied to an electronic ROT. discourage liquidity in particular
to further clarify the manner in which Proposed Phlx Rule 1081(c)(ii)(A) options series because an electronic
the quoting obligations are applied. provides that SQTs and RSQTs, ROT is forced to focus on a momentary
With respect to electronic ROTs, associated with the same member lapse, rather than using the appropriate
similar to the existing Phlx language at organization, are collectively required to resources to focus on the options series
Phlx Rule 1014(b)(ii)(D)(3), the provide two-sided quotations in 60% of that need and consume additional
Exchange proposes to continue to the cumulative number of seconds, or liquidity.
require the best bid and best offer such higher percentage as Phlx may
entered by an electronic ROT to have a announce in advance, for which that 19 See Phlx Rule 1081(c)(ii)(D).
size of not less than the minimum member organization’s assigned options 20 This is similar to Phlx Rule 1014(b)(ii)(D)(4).
number of contracts determined by the series are open for trading. The The Exchange is utilizing the phrase ‘‘series with
Exchange on a class by class basis, Exchange includes proposed rule text at an expiration of nine months or greater’’ in this
amozie on DSK30RV082PROD with NOTICES
version simply for clarity and to conform to the
which minimum shall be at least one (1) Phlx Rule 1081(c)(ii)(D), which provides current BX language at BX Rules at Chapter VII at
contract. Further, the rule text specifies Section 6. Once the options series had less than
16 See proposed Phlx Rule 1081(c)(i). nine months of expiration, the electronic ROT
15 An intra-day add of a series shall be defined, 17 See proposed Phlx Rule 1081(c)(ii). would be required to commence quoting the
for purposes of this Rule 1081, as an option series 18 See Phlx Rule 1014(b)(ii)(D)(1). This options series if appointed in that options series.
21 See Phlx Rule 1014(b)(ii)(D)(1).
that is added manually on the same day the series requirement is also similar to BX Rules at Chapter
begins trading. VII, Section 6(b). 22 See proposed Phlx Rule 1081(c)(ii)(A) and (D).
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![Federal Register / Vol. 83, No. 66 / Thursday, April 5, 2018 / Notices 14693
The Exchange is defining an Adjusted heightened obligations allow for the not be required to make two-sided
Options Series as an option series Specialist to receive certain markets pursuant to 1081(c)(ii) in any
wherein one option contract in the participation rights.26 The participation Quarterly Option Series, any Adjusted
series represents the delivery of other rights reward Specialists for making Options Series, and any option series
than 100 shares of underlying stock or markets and providing other market with an expiration of nine months or
Exchange-Traded Fund Shares. This participants an incentive to quote greater.30 This provision is not being
definition at Proposed Phlx Rule aggressively. amended and is similar to the current
1081(c)(ii)(A)(i) is the same definition Today, Phlx Rule 1014(b)(ii)(D)(4) Phlx rule and BX Rules at Chapter VII,
that is currently in Phlx Rule provides an exception from the quoting Section 15(iv).31 These quotations must
1014(b)(ii)(D)(4). obligations in Quarterly Option Series, meet the legal quote width requirements
Proposed Phlx Rule 1081(c)(ii)(B) Adjusted Options Series, and any option specified in Phlx Rule 1014(c)(i)(A)(1)
provides that Specialists (including series until the time for expiration for and (2).
Remote Specialists), associated with the such series is less than nine months, for The proposed provisions amend the
same member organization, are SQTs, DSQTs, RSQTs, and DRSQTs. current Phlx requirement which
collectively required to provide two- This exception does not apply to requires a Directed ROT to quote two-
sided quotations in 90% of the Specialists or Remote Specialists sided markets in the lesser of 99% of the
cumulative number of seconds, or such because they are not listed as an series listed on the Exchange or 100%
higher percentage as Phlx may excepted class. The Exchange’s proposal of the series listed on the Exchange
announce in advance, for which that continues to require Specialists and minus one call-put pair, in each case in
member organization’s assigned options Remote Specialists to quote in Quarterly at least 60% of the options in which
series are open for trading. The Option Series, Adjusted Options Series, such DSQT or DRSQT is assigned.
Exchange includes proposed rule text at and any option series until the time for Whenever a DSQT or DRSQT enters a
Phlx Rule 1081(c)(ii)(D), which provides expiration for such series is less than quotation in an option in which such
that the obligation at Phlx Rule nine months where assigned.27 This rule DSQT or DRSQT is assigned, such
1081(c)(ii)(B) would be calculated by (i) text does not conform to BX Rules at DSQT or DRSQT must maintain until
taking the total number of seconds the Chapter VII, Section 14. A BX Lead the close of that trading day quotations
member organization disseminates Market Maker is not required to quote for the lesser of 99% of the series of the
quotes in each assigned options series; Quarterly Options Series, Adjusted option listed on the Exchange or 100%
and (ii) dividing that time by the eligible Options Series, or any series with a time of the series of the option listed on the
total number of seconds each assigned to expiration of nine months or greater. Exchange minus one call-put pair. The
option series is open for trading that Proposed Phlx Rule 1081(c)(ii)(C) Exchange desires to lower the
day. Further, the rule text notes that provides Directed SQTs and Directed requirement to conform to BX’s
quoting is not required in every RSQTs, associated with the same requirement for Directed Market Makers
assigned options series.23 Compliance member organization, are collectively in BX Rules at Chapter VII, Section
with this requirement is determined by required to provide two-sided 15(iii). The Exchange notes that
reviewing the aggregate of quoting in quotations in 90% of the cumulative Directed SQTs and Directed RSQTs
assigned options series for the member number of seconds, or such higher continue to have heightened quoting
organization.24 The [sic] proposal to percentage as Phlx may announce in requirements as compared to electronic
quote in aggregate all of assigned series advance, for which that member ROTs, which heightened obligations
90% of the trading day would align organization’s assigned options series allow for the Directed SQTs and
Phlx’s Rule to that of BX. are open for trading. The Exchange Directed RSQTs to receive certain
This is an amendment from the includes proposed rule text at Phlx Rule participation rights.32 The enhanced
current Phlx requirement which 1081(c)(ii)(D), which provides that the participation rights reward Directed
requires a Specialist to quote two-sided obligation at Phlx Rule 1081(c)(ii)(C) SQTs and Directed RSQTs for making
markets in the lesser of 99% of the would be calculated by (i) taking the markets and providing other market
series or 100% of the series minus one total number of seconds the member participants an incentive to quote
call-put pair in each option in which the organization disseminates quotes in aggressively.
Specialist is assigned. Today, the each assigned options series, excluding For purposes of the quoting
Specialist must quote such series 90% Quarterly Option Series, any Adjusted obligations specified in proposed Rule
of the trading day (as a percentage of the Options Series, and any option series 1081(c)(ii)(C) a member organization
total number of minutes in such trading with an expiration of nine months or shall be considered directed in all
day) or such higher percentage as the greater for SQTs, RSQTs, Directed SQTs assigned options once the member
Exchange may announce in advance.25 and Directed RSQTs; and (ii) dividing organization receives a Directed Order
The Exchange desires to lower the that time by the eligible total number of in any option in which they are
requirement to conform to BX’s seconds each assigned option series is
30 As noted herein, for purposes of this Rule, an
requirement for Lead Market Makers, open for trading that day. Further, the
adjusted option series is defined as an option series
the equivalent of Phlx’s Specialists, at rule text notes that quoting is not wherein one option contract in the series represents
BX Rules at Chapter VII, Section 14(f). required in every assigned options the delivery of other than 100 shares of underlying
As is the case today, these quotations series.28 Compliance with this stock or Exchange-Traded Fund Shares (‘‘Adjusted
must meet the legal quote width requirement is determined by reviewing Options Series’’). Once the options series had less
than nine months of expiration, the electronic ROT
requirements specified in Phlx Rule the aggregate of quoting in assigned would be required to commence quoting the
1014(c)(i)(A)(1) and (2). The Exchange options series for the member options series if appointed in that options series.
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notes that Specialists continue to have organization.29 Notwithstanding the 31 This is similar to Phlx Rule 1014(b)(ii)(D)(4).
heightened quoting requirements as foregoing, a member organization shall The Exchange is utilizing the phrase ‘‘series with
an expiration of nine months or greater’’ in this
compared to electronic ROTs, which version simply for clarity. This provision, which
26 See Phlx Rule 1014(g)(vii)(B)(1)(c). refers to any series with an expiration of nine
23 See proposed Phlx Rule 1081(c)(ii)(B) and (D). 27 See Phlx Rule 1081(c)(ii)(B). months or greater, is the same measure utilized
24 See Phlx Rule 1081(c)(ii)(D). 28 See proposed Phlx Rule 1081(c)(ii)(C) and (D). today on Phlx, however, it is phrased different [sic].
25 See Phlx Rule 1014(b)(ii)(D)(2). 29 See Phlx Rule 1081(c)(ii)(D). 32 See Phlx Rule 1014(g)(viii)(B)(1) [sic].
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assigned and shall be considered a Example for calculating quoting for an Total quoted time for U4 is: 15:59:34–
Directed SQT or Directed RSQT until electronic ROT: 09:34:29 = (15–09)*3600 + (59–34)*60
such time as the member organization Market Maker firm A (‘‘MM A’’) has + (34–29) = 23105 (seconds)
notifies the Exchange that they are no Badges 1, 2 and 3. MM A has Total available quote time is: 16:00:20–
longer directed.33 The Exchange notes permission to quote underlying U which 09:30:01 = (15–9)*3600 + (60–30)*60
that if a member desired to become a has options U1, U2, U3, U4, and U5. + (20–1) = 23419 (seconds)
Directed SQT that this obligation would MM A also has permission to quote Option U5 opened at 9:30:11 and closed
commence when that Directed SQT underlyings V and W. at 16:00:23
executed an order directed to the Option U1 opened at 09:30:30 and No MM A badges quoted U5 thus, the
Directed SQT. For example if on March closed at 16:00:39 total quoted time for U5 will be: 0
15, 2018 at 3:00 p.m. SQT A received its Badge 1 quoted U1 at 09:35:30 @ (seconds)
first directed order, the quoting 13.00(10)–15.00(10) Total available quote time is: 16:00:23–
obligations would begin at that time Badge 1 updated quote in U1 at 09:50:31 09:30:11 = (15–9)*3600 + (60–30)*60
(3:00 p.m.) and would continue until @10.00(10)–15.00(20) + (23–11) = 23412 (seconds)
such time as SQT A informed Nasdaq Badge 1 purged quote at 15:55:40 The Total quote percentage for MM A
[sic] Operations that it no longer desired Total quoted time for U1 is: 15:55:40–
is:
to be directed. If a Directed SQT or 09:35:30 = (15–9)*3600 + (55–35)*60
Directed RSQT no longer desired to + (40–30) = 22810 (seconds) Total time for MM A quoted underlying
participate in the Directed Order Total available quote time for U1 is: U: 22810 + 18010 + 13784 + 23105 +
program the Exchange would not permit 16:00:39–09:30:30 = (15–9)*3600 + 0 = 77709 (seconds)
the Directed SQT or Directed [sic] to (60–30)*60 + (39–30) = 23409 Total eligible quoting time for MM A on
receive an enhanced allocation pursuant (seconds) underlying U: 23409 + 23397 + 22878
to Rule 1014(g)(viii).34 A Directed SQT’s Option U2 opened at 09:30:32 and + 23419 + 23412 = 116515 (seconds)
or Directed RSQT’s quoting obligations closed at 16:00:29 Similarly assume:
would cease at such time as the member Badge 2 quoted U2 at 10:05:30 @ Total time for MM A quoted underlying
organization contacted Nasdaq [sic] 13.00(10)–15.00(10) V: 70983(seconds)
Operations indicating the firm no longer Badge 2 updated quote in U2 at 11:00:01 Total eligible quoting time for MM A on
desired to participate as a Directed SQT @11.00(10)–16.00(20) underlying V: 84515 (seconds)
or a Directed RSQT. Badge 2 purged quote at 15:05:40 Total time for MM A quoted underlying
As is the case today, Phlx Regulation Total quoted time for U2 is: 15:05:40– W: 0(seconds)
may consider exceptions to the above- 10:05:30 = (14–10)*3600 + (65–05)*60 Total eligible quoting time for MM A on
referenced requirement to quote based + (40–30)= 18010 (seconds) underlying W: 46513 (seconds)
on demonstrated legal or regulatory Total available quote time for U2 is:
requirements or other mitigating 16:00:29–09:30:32 = (15–9)*3600 + Then the total quoting percentage for
circumstances. For purposes of the (59–30)*60 + (89–32) = 23397 MM A is:
Exchange’s surveillance of member (seconds) (77709 + 70983 + 0) / (116515 + 84515
organization compliance with this rule, Option U3 opened at 09:40:02 and + 46513) = 148692/247543 = 60.07%
the Exchange may determine closed at 16:01:20 2. Statutory Basis
compliance on a monthly basis. The Badge 3 quoted U3 at 11:10:21 @
Exchange’s monthly compliance 21.00(10)–24.00(20) The Exchange believes that its
evaluation of the quoting requirement Badge 3 purged quote at 15:00:05 proposal is consistent with Section 6(b)
does not relieve a member organization Total quoted time for U3 is: 15:00:05– of the Act,37 in general, and furthers the
of the obligation to provide two-sided 11:10:21 = (14–11)*3600 + (59–10)*60 objectives of Section 6(b)(5) of the Act,38
quotes on a daily basis, nor will it + (65–21) = 13784 (seconds) in particular, in that it is designed to
prohibit the Exchange from taking Total available quote time for U3 is: promote just and equitable principles of
disciplinary action against a member 16:01:20–09:40:02 = (15–9)*3600 + trade, to remove impediments to and
organization for failing to meet the (61–40)*60 + (20–2) = 22878 perfect the mechanism of a free and
quoting obligation each trading day.35 (seconds) open market and a national market
Further, as is the case today, if a Option U4 opened at 9:30:01 and closed system, and, in general to protect
technical failure or limitation of a at 16:00:20 investors and the public interest for the
System of Phlx prevents a member Badge 1, 2 and 3 all quoted option U4: reasons stated below.
organization from maintaining, or Badge 1 quoted U4 at 09:38:59 @ The Exchange believes that its
prevents a member organization from 35.00(10)–37.00(10) proposed rule change provides further
communicating to Phlx timely and Badge 1 updated quote in U4 at 10:30:21 detail as to obligations of electronic
accurate quotes, the duration of such @31.00(10)–37.00(20) ROTs on Phlx. The Exchange’s proposed
failure or limitation shall not be Badge1 purged quote in U4 at 15:45:00 obligations, which are similar to BX
included in any of the calculations Badge 2 quoted U4 at 09:34:29 @ Rules at Chapter VII, Section 5,
under subparagraph (c)(ii) of proposed 35.00(10)–37.00(10) delineate examples of the type of
Rule 1081 with respect to the affected Badge 2 purged quote at 15:35:55 activity that constitutes a course of
quotes.36 Badge 3 quoted U4 at 10:33:21 @ dealings reasonably calculated to
36.00(10)–38.00(20) contribute to the maintenance of a fair
33 A member organization that desires not to be Badge 3 purged quote at 15:59:34 and orderly market. This proposal is
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directed would contact the Exchange’s Operations Since Badge 2 began quoting U4 at the consistent with the Act because it
desk. earliest time, this time is used for the removes impediments to and perfects
34 Once the Nasdaq [sic] Operations desk was
total quote time determination. the mechanism of a free and open
contacted, Nasdaq [sic] staff would take steps to
remove the ability of the member organization to be
Similarly, MM A’s Badge 3 was last to market and a national market system by
allocated as a Directed SQT or a Directed RSQT. purge his quote in U4 so this purge
35 See Phlx Rule 1014(b)(ii)(D)(1) and (2). time is used for the total quote time 37 15 U.S.C. 78f(b).
36 See Phlx Rule 1014(b)(ii)(D)(5). determination. 38 15 U.S.C. 78f(b)(5).
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![Federal Register / Vol. 83, No. 66 / Thursday, April 5, 2018 / Notices 14695
imposing obligations on market makers market if its quoting obligation is more compared to SQTs and RSQTs because
with respect to making markets on Phlx. in line with that of other exchanges. they are entitled to certain allocation
While under the proposal there are The Exchange’s proposal that SQTs benefits that other ROTs are not entitled
quoting requirements changes, the and RSQTs, associated with the same to today. Phlx Rule 1014(g)(vii) provides
Exchange does not believe that these member organization, are collectively for the allocation method for electronic
changes reduce the overall obligations required to provide two-sided ROTs on Phlx after the Specialist
applicable to electronic ROTs.39 quotations in 60% of the cumulative Participation Entitlement has been
Moreover, the Exchange believes that number of seconds, or such higher applied and Phlx Rule 1014(g)(viii)
the proposal may increase market percentage as Phlx may announce in provides for the allocation method in
making activity on the Exchange and the advance, for which that member the case of directed orders to the
quality of the Exchange’s market by organization’s assigned options series electronic Directed SQT and Directed
establishing quoting compliance are open for trading seeks to promote RSQT, and such allocation will depend
standards that are reasonable and just and equitable principles of trade, on the number of electronic ROTs
already in place on other options and to foster cooperation and present. The Specialist receives an
exchanges.40 coordination with persons engaged in entitlement after all Customer orders
With respect to the quoting facilitating transactions in securities by have been fully executed provided the
obligations, the Exchange’s proposal aligning Phlx’s Rules with quoting Specialist’s bid/offer is at or improves
seeks to conform the quoting obligations obligations on BX. The Exchange notes on the Exchange’s disseminated price
to that of BX’s Rules.41 The Exchange is that electronic ROTs are required to and up to the Specialist’s displayed
amending the quoting obligations for abide by the Exchange’s obligations in size.44 A DSQT or a DRSQT shall be
electronic ROTs to lower the order to contribute to the maintenance allocated a participation entitlement as
obligations. Phlx’s current quoting of a fair and orderly market. specified in Phlx Rule 1014(g)(viii)(B)(1)
requirements are much more stringent The proposal supports the quality of and (2). The Exchange notes that
than certain other exchanges. Quoting the Exchange’s market by helping to Specialists and Directed SQTs and
two-sided markets in not less than 60% ensure that electronic ROTs will Directed RSQTs continue to have
of the series in which such SQT or continue to be obligated to quote in a heightened quoting requirements as
RSQT is assigned and also for a percentage of their assigned series. compared to electronic ROTs, which
Specialist (including Remote Specialist), Ultimately, the benefit the proposed heightened obligations allow for the
Directed SQT or Directed SQT [sic] rule change confers upon electronic Specialist, Directed SQTs and Directed
quoting two-sided markets in the lesser ROTs is offset by the continued RSQTs to receive certain enhanced
of 99% of the series or 100% of the responsibilities to provide significant participation rights.45 The enhanced
series minus one call-put pair in each liquidity to the market to the benefit of participation rights reward Specialists,
option in which such Specialist is market participants. Despite the Directed SQTs and Directed RSQTs for
assigned, 90% of the trading day (as a reduction, the Exchange believes that making markets and providing other
percentage of the total number of the proposed rule text is consistent with market participants an incentive to
minutes in such trading day) or such the Act because the quoting obligations quote aggressively. While electronic
higher percentage as the Exchange may are similar to quoting obligations on BX ROTs will be subject to lower quoting
announce, is much more stringent than today.42 Determining compliance with requirements as compared to Specialists
looking at all options in which an the continuous quoting requirement on and electronic Directed SQTs and
electronic ROT is registered, because it a monthly basis would not relieve an Directed RSQTs, they will also be
[sic] allows for some number of series electronic ROT from the obligation to entitled to lower allocations. The
not to be quoted at all, as long as the quote two-sided quotes for 60% of the Exchange believes that the proposed
overall standard is met. This better cumulative number of seconds on a rule text is consistent with the Act
accommodates the occasional issues daily basis, nor would it prohibit the because the obligations are
that may arise in a particular series, Exchange from taking disciplinary commensurate with the ability to
whether technical or manual. The action against an electronic ROT for achieve certain allocations. The
existing requirement may at times failing to meet the quoting obligation Exchange believes that its proposal will
discourage liquidity in particular each trading day. For these reasons, the continue to align SQTS and RSQTs,
options series because an electronic Exchange believes that the proposed Specialists and electronic Directed
ROT is forced to focus on a momentary changes to the quoting obligations are SQTs and Directed RSQTs accordingly.
lapse rather than using the appropriate consistent with the Act. Further, the Also, the proposal will align with
resources to focus on the options series proposed changes to the quoting quoting requirements on BX today.46
that need and consume additional obligations for electronic ROTs are
consistent with market maker Finally the proposed rule text serves
liquidity. Phlx believes that it can better
obligations in place on BX as noted to provide more specificity to members
attract electronic ROTs and grow its
herein.43 regarding the manner in which quoting
39 In this respect, the Exchange notes that Further, the Exchange’s proposal to obligations are calculated.
electronic ROTs are subject to many obligations amend the quoting obligations for
aside from quoting, including, for example, the Specialists and electronic Directed 44 The Specialist Participation Entitlement shall
obligation to maintain a fair and orderly market in be 60% of remaining interest if there is one other
their appointed classes, and the obligation to
SQTs and Directed RSQTs is consistent ROT at that price. The Specialist Participation
conduct the opening and enter continuous with the Act because despite lowering Entitlement shall be 40% of remaining interest if
quotations in all of the series of their appointed the current obligations, the Exchange there are two ROTs at that price. Finally, the
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options classes within maximum spread continues to impose higher quoting Specialist Participation Entitlement 30% of
requirements. remaining interest if there are more than two other
40 See BX Rules at Chapter VII at Section 6.
obligations on Specialists and electronic ROTs at that price. See Phlx Rule
41 See BX Rules at Chapter VII at Sections 6, 14
Directed SQTs and Directed RSQTs as 1014(g)(vii)(B)(1)(c) and 1014(g)(ii).
45 See Phlx Rule 1014(g)(vii)(B)(1)(c) and
and 15. The proposed rule text is different than the
42 See BX Rules at Chapter VII at Sections 6, 14 (g)(viii)(B)(1) [sic].
BX rule text with respect to quoting obligations,
however the computation of the quoting obligations and 15. 46 See BX Rules at Chapter VII at Sections 6, 14
will be the same as BX’s computations today. 43 Id. and 15.
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![14696 Federal Register / Vol. 83, No. 66 / Thursday, April 5, 2018 / Notices
B. Self-Regulatory Organization’s Comments may be submitted by any of SECURITIES AND EXCHANGE
Statement on Burden on Competition the following methods: COMMISSION
The Exchange does not believe that Electronic Comments
the proposed rule change will impose [Release No. 34–82968; File No. SR–Phlx–
any burden on competition not • Use the Commission’s internet 2018–27]
necessary or appropriate in furtherance comment form (http://www.sec.gov/
of the purposes of the Act. Electronic rules/sro.shtml); or Self-Regulatory Organizations; Nasdaq
ROTs will continue to be entitled to • Send an email to rule-comments@ PHLX LLC; Notice of Filing and
certain allocations, similar to today. sec.gov. Please include File Number SR– Immediate Effectiveness of Proposed
Electronic ROTs, unlike other market Phlx–2018–22 on the subject line. Rule Change To Amend the
participants, have obligations which the Exchange’s Provisions for Excluding a
Exchange has memorialized within the Paper Comments Day From Its Volume Calculations for
proposed rule text. The Exchange Purposes of Determining Volume
believes that treating Electronic ROTs • Send paper comments in triplicate
to Secretary, Securities and Exchange Based Pricing
differently than other market
participants does not impose an undue Commission, 100 F Street NE, March 30, 2018.
burden on competition because Washington, DC 20549–1090.
Pursuant to Section 19(b)(1) of the
Electronic ROTs provide liquidity to the All submissions should refer to File Securities Exchange Act of 1934
market which benefits market Number SR–Phlx–2018–22. This file
participants who interact with that (‘‘Act’’),1 and Rule 19b–4 thereunder,2
number should be included on the notice is hereby given that on March 19,
liquidity. The Exchange requires subject line if email is used. To help the
Electronic ROTs today to maintain fair 2018, Nasdaq PHLX LLC (‘‘Phlx’’ or
Commission process and review your
and orderly markets. The Exchange ‘‘Exchange’’) filed with the Securities
comments more efficiently, please use
believes the allocation benefits are and Exchange Commission (‘‘SEC’’ or
only one method. The Commission will
commensurate with the quoting ‘‘Commission’’) the proposed rule
post all comments on the Commission’s
obligations imposed on Electronic internet website (http://www.sec.gov/ change as described in Items I, II, and
ROTs. Additionally, the Exchange rules/sro.shtml). Copies of the III, below, which Items have been
believes that the varying quoting submission, all subsequent prepared by the Exchange. The
requirements as between electronic amendments, all written statements Commission is publishing this notice to
ROTs and Specialists and electronic with respect to the proposed rule solicit comments on the proposed rule
Directed SQTs and Directed RSQTs does change that are filed with the change from interested persons.
not impose an undue burden on Commission, and all written
competition because while electronic I. Self-Regulatory Organization’s
communications relating to the Statement of the Terms of Substance of
ROTs will be subject to lower quoting proposed rule change between the
requirements as compared to Specialists the Proposed Rule Change
Commission and any person, other than
and electronic Directed SQTs and those that may be withheld from the
Directed RSQTs, they will also be The Exchange proposes to amend the
public in accordance with the Exchange’s provisions for excluding a
entitled to lower allocations. provisions of 5 U.S.C. 552, will be day from its volume calculations for
C. Self-Regulatory Organization’s available for website viewing and purposes of determining volume based
Statement on Comments on the printing in the Commission’s Public pricing.
Proposed Rule Change Received From Reference Room, 100 F Street NE,
Members, Participants, or Others Washington, DC 20549 on official The text of the proposed rule change
business days between the hours of is available on the Exchange’s website at
No written comments were either http://nasdaqphlx.cchwallstreet.com/,
solicited or received. 10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for at the principal office of the Exchange,
III. Date of Effectiveness of the inspection and copying at the principal and at the Commission’s Public
Proposed Rule Change and Timing for office of the Exchange. All comments Reference Room.
Commission Action received will be posted without change. II. Self-Regulatory Organization’s
Within 45 days of the date of Persons submitting comments are
Statement of the Purpose of, and
publication of this notice in the Federal cautioned that we do not redact or edit
Statutory Basis for, the Proposed Rule
Register or within such longer period (i) personal identifying information from
comment submissions. You should Change
as the Commission may designate up to
90 days of such date if it finds such submit only information that you wish In its filing with the Commission, the
longer period to be appropriate and to make available publicly. All Exchange included statements
publishes its reasons for so finding or submissions should refer to File concerning the purpose of and basis for
(ii) as to which the Exchange consents, Number SR–Phlx–2018–22, and should the proposed rule change and discussed
the Commission shall: (a) By order be submitted on or before April 26, any comments it received on the
approve or disapprove such proposed 2018.
proposed rule change. The text of these
rule change, or (b) institute proceedings For the Commission, by the Division of statements may be examined at the
to determine whether the proposed rule Trading and Markets, pursuant to delegated places specified in Item IV below. The
change should be disapproved. authority.47 Exchange has prepared summaries, set
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IV. Solicitation of Comments Eduardo Aleman, forth in sections A, B, and C below, of
Interested persons are invited to Assistant Secretary. the most significant aspects of such
submit written data, views, and [FR Doc. 2018–06916 Filed 4–4–18; 8:45 am] statements.
arguments concerning the foregoing, BILLING CODE 8011–01–P
including whether the proposed rule 1 15 U.S.C. 78s(b)(1).
change is consistent with the Act. 47 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4.
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Document Created: 2018-11-01 09:13:09
Document Modified: 2018-11-01 09:13:09
| 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 14690 |
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