83 FR 42532 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Codify the Definitions of the Protocols To Enter Quotes and Orders

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 163 (August 22, 2018)

[Federal Register Volume 83, Number 163 (Wednesday, August 22, 2018)]
[Notices]
[Pages 42532-42534]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-18064]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83867; File No. SR-Phlx-2018-54]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Codify the 
Definitions of the Protocols To Enter Quotes and Orders

August 16, 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 August 14, 2018, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to remove text currently contained in Rule 
1080(a) and relocate and add text into that section (a) to codify the 
definitions of the protocols that members can use to enter quotes and 
orders on the Exchange.
    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to: (i) Retitle Rule 1080; (ii) remove the 
current rule text located at Phlx Rule 1080(a); and (iii) relocate the 
definition of the Specialized Quote Feed (``SQF'') from Commentary 
.01(a) of Rule 1080 to proposed 1080(a)(i)(b) and relocate the 
definition of the Options Floor Based Management System (``FBMS'') from 
Commentary .06 of Rule 1080 to proposed 1080(a)(i)(c) and codify the 
Financial Information eXchange (``FIX'') within Rule 1080(a)(i)(a).
Rule 1080 Title
    Rule 1080 is currently titled ``Phlx.'' The Exchange proposes to 
retitle Rule 1080 as ``Electronic Acceptance of Quotes and Orders.''
Rule 1080(a) ``General''
    The Exchange proposes to delete paragraph (a), ``General,'' which 
defines the Exchange's System using a prior system's names AUTOM and 
AUTO-X, which terms are obsolete, as are references to and the 
functions of each.\3\ Rule 1080(a) also refers to a successor system, 
Phlx XL, which is also obsolete.\4\ The Exchange recently added a 
definition to its Rules at 1000(b)(45) which describes the Exchange's 
System.\5\
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    \3\ Manual execution by a specialist could occur in AUTOM. This 
first paragraph also refers to AUTOM routing orders to the 
specialist unit, and this rule governing order messages, all of 
which is obsolete. AUTOM and AUTO-X were replaced by Phlx XL. See 
Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 
46612 (August 3, 2004) (SR-Phlx-2003-59).
    \4\ Phlx XL was replaced by Phlx XL II, which was phased in over 
a period of time. See Securities Exchange Act Release No. 59995 (May 
28, 2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
    \5\ See Securities Exchange Act Release No. 82577 (January 24, 
2018), 83 FR 4354 (January 30, 2018) (SR-Phlx-2018-09).
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    The Exchange also proposes to delete cross-references to Rules 
1014(b) and 1017, which are unnecessary. Rule 1014, entitled, 
``Obligations and Restrictions Applicable to Specialists and Registered 
Options Traders,'' contains various definitions, including a Registered 
Options Trader at Rule 1014(b). The Exchange believes it is unnecessary 
to cite the specific rule. Further, Rule 1017 entitled ``Openings in 
Options'' does not require a specific citation.
New Rule 1080(a)
    The Exchange believes that codifying definitions of these protocols 
in its rules will increase transparency around its operations.\6\ The 
protocols used by members to submit quotes and orders play an important 
role in the operation of the System. The Exchange therefore believes 
that codifying definitions of these protocols in its rules will 
increase transparency around its operations.
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    \6\ See Securities Exchange Act Release Nos. 83729 (July 27, 
2018), 83 FR 37870 (August 2, 2018) (SR-ISE-2018-65); 83731 (July 
27, 2018), 83 FR 37867 (August 2, 2018) (SR-GEMX-2018-26); and 83730 
(July 27, 2018), 83 FR 37873 (August 2, 2018) (SR-MRX-2018-25). 
Nasdaq BX, Inc. was filed as SR-BX-2018-038. The Nasdaq Stock Market 
LLC will submit a similar filing to amend The Nasdaq Options Market 
LLC ports.
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    The Exchange proposes to add a new section (a) entitled ``Entry and 
Display of Orders and Quotes.'' The Exchange proposes to state in 
proposed Rule 1080(a) ``Members may enter orders and quotes into the 
System as specified below.'' The Exchange proposes to add a section 
1080(a)(i) which provides, ``The Exchange offers members the following 
protocols for entering orders and quotes respectively.''
    Although the Exchange is changing how it categorizes various 
features included on FIX and SQF as part of its harmonization effort, 
the list of features included in the proposed definitions are intended 
to be exhaustive with respect to the buckets of information provided on 
each protocol. Overall, the Exchange believes that the proposed changes 
will allow members to more easily understand what information is 
available on which protocol.
A. Financial Information eXchange Ports
    This protocol is not memorialized within the Exchange's Rulebook, 
however rule changes describing FIX have been filed.\7\ The Exchange

[[Page 42533]]

proposes to now codify a description of FIX in its rulebook to add even 
greater specificity within proposed Rule 1080(a)(i)(A). The Exchange 
proposes to state that FIX is an interface that allows members and 
their Sponsored Customers to connect, send and receive messages related 
to orders and auction orders and responses to and from the Exchange. 
Features include the following: (1) Execution messages; (2) order 
messages; and (3) risk protection triggers and cancel notifications.
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    \7\ See Securities Exchange Act Release No. 61665 (March 5, 
2010), 75 FR 11967 (March 12, 2010) (SR-Phlx-2010-25). The FIX port 
was previously referred to as the ``Order Entry Port'' and described 
as a connection to routing orders to the Exchange via an external 
order entry port. Members access the Exchange's network through 
order entry ports. A member organization may have more than one 
order entry port. The Exchange recently renamed the ``Order Entry 
Port'' as the ``FIX Port'' in the Exchange's Pricing Schedule. See 
Securities Exchange Act Release No. 83194 (May 9, 2018), 83 FR 22555 
(May 15, 2018) (SR-Phlx-2018-34).
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B. Specialized Quote Feed Ports
    SQF is currently defined at Commentary .01(a) to Rule 1080 as ``A 
specialist, RSQT or SQT may establish an option pricing model via a 
specialized connection, which is known as a specialized quote feed 
(``SQF'').'' The Exchange proposes to remove this description from 
Commentary .01(a) to Rule 1080 and relocate the definition to proposed 
Rule 1080(a)(i)(B) and instead a more descriptive definition of this 
protocol. The Exchange proposes the following:

    SQF is an interface that allows Specialists, Streaming Quote 
Traders (``SQTs'') and Remote Streaming Quote Traders (``RSQTs'') to 
connect, send, and receive messages related to quotes, Immediate-or-
Cancel Orders, and auction responses into and from the Exchange. 
Features include the following: (1) Options symbol directory 
messages (e.g., underlying and complex instruments); (2) system 
event messages (e.g., start of trading hours messages and start of 
opening); (3) trading action messages (e.g., halts and resumes); (4) 
execution messages; (5) quote messages; (6) Immediate-or-Cancel 
Order messages; (7) risk protection triggers and purge 
notifications; (8) opening imbalance messages; (9) auction 
notifications; and (10) auction responses. The SQF Purge Interface 
only receives and notifies of purge request from the Specialist, SQT 
or RSQT.\8\
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    \8\ All of the notification messages available on SQF ports as 
described above (i.e., options symbol directory messages, system 
event messages, trading action messages, etc.) are configurable in 
that Specialists, SQTs or RSQTs can select the specific types of 
notifications they wish to receive on their SQF ports. As such, SQF 
Purge Interface ports are a subpart of SQF ports that have been 
configured to only receive and notify of purge requests.

The Exchange believes that this information provides a more thorough 
description of the SQF protocol.
    The Exchange also proposes to remove the remainder of Commentary 
.01(a) to Rule 1080, which provides, ``Specialists, SQTs and RSQTs 
individually determine which model to select per option and may change 
models during the trading day. Each pricing model requires the 
specialist, SQTs and RSQTs to input various parameters, such as 
interest rates, volatilities (delta, vega, theta, gamma, etc.) and 
dividends.'' The Exchange is no longer involved in the pricing models 
that its users choose. This rule text is obsolete. Specialists, SQTs, 
and RSQTs provide their quotations to the Exchange using their own 
proprietary models; the Exchange does not offer any pricing models to 
its members. The Exchange proposes to reserve this section.
C. Options Floor Based Management System (``FBMS'')
    The Exchange proposes to relocate the Options Floor Based 
Management System currently defined in Commentary .06 of Rule 1080 to 
proposed Rule 1080(a)(i)(C). No substantive changes are being made to 
the description. The Exchange proposes to delete .06 and also to delete 
.07 and .08 of the Commentary, which are currently reserved.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest by removing obsolete text from its rules and 
adding greater transparency to the order and quote protocols available 
on Phlx.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that renaming Phlx Rule 1080 will better 
describe the information contained in the rule. Also, removing obsolete 
rule text from Phlx Rule 1080(a) and Commentary .01(a) to Rule 1080 
will remove confusion as to the System and its offerings. The rule text 
being removed is obsolete.
    The Exchange believes that the proposed rule change is consistent 
with the protection of investors and the public interest as it codifies 
the protocols used to connect to the Exchange's System. While no 
functional changes to the protocols are proposed in this filing, the 
Exchange believes that including a description of the protocols in its 
rulebook will benefit members by increasing transparency around the 
operation of the Exchange. Furthermore, the proposed definitions being 
included in the rulebook will more clearly and accurately reflect the 
information included on the protocols, and will be harmonized with 
language to be included in the rules of its affiliated exchanges to the 
extent that the protocols operate in the same manner. The protocols 
described in this filing provide a range of important features to 
members, including the ability to submit quotes and orders, and perform 
other functions necessary to manage trading on the Exchange. The 
Exchange believes codifying the quote and order entry protocols will 
increase transparency to the members that use these protocols to 
connect to the Exchange.

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. As explained above, the 
Exchange is codifying the quote and order entry protocols that members 
use to connect to the Exchange's System. The obsolete rule text does 
not currently apply to any member on Phlx and therefore removing the 
inapplicable language will not impact any member on Phlx.
    The Exchange does not believe that codifying the order entry 
protocols in the rulebook will have any competitive impact. Locating 
all the descriptions within a single rule and adding context around 
each order entry protocol will increase transparency around the 
operation of the Exchange without having any impact on inter-market or 
intra-market competition. All market participants have the ability to 
subscribe to the protocols for order entry. The quoting protocols are 
limited to the market participants who are permitted by rule to quote 
on Phlx, but the function is uniformly available to these eligible 
participants.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section

[[Page 42534]]

19(b)(3)(A)(iii) of the Act \11\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2018-54 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-2018-54. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-Phlx-2018-54 and should be submitted on 
or before September 12, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18064 Filed 8-21-18; 8:45 am]
 BILLING CODE 8011-01-P