83 FR 62653 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 3306(c)(2)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 233 (December 4, 2018)

[Federal Register Volume 83, Number 233 (Tuesday, December 4, 2018)]
[Notices]
[Pages 62653-62655]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-26271]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84672; File No. SR-Phlx-2018-75]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 
3306(c)(2)

November 28, 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 November 16, 2018, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I and II 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 allow the Exchange to aggregate Displayed 
odd-lot Orders across price levels for transmission to network 
processors as the Exchange's best priced Order under Rule 3306(c)(2). 
While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative in the first quarter 
of 2019, and will announce the precise date by Equity Trader Alert at 
least thirty days prior to implementation.
    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.

[[Page 62654]]

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 is proposing to amend Rule 3306 to allow the Exchange 
to aggregate Displayed \3\ odd-lot Orders across price levels for 
transmission to network processors as the Exchange's best ranked 
Displayed Order(s), which is based on how NYSE Arca, Inc. handles such 
orders pursuant to NYSE Arca Rule 7.36-E(b)(3).\4\ Rule 3306 concerns 
entry and display of Quotes \5\ and Orders,\6\ and paragraph (c) 
thereunder provides how the System \7\ will display Quotes and Orders 
submitted to the System. Rule 3306(c)(2), which the Exchange is 
proposing to amend, describes what the Exchange transmits to the 
network processors as the Exchange's best priced Order. Specifically, 
Rule 3306(c)(2) provides that, for each System Security,\8\ the 
aggregate size of all Quotes and Orders at the best price to buy and 
sell resident in the System will be transmitted for display to the 
appropriate network processor, unless the aggregate size is less than 
one round lot, in which case the aggregate size will be displayed in 
the System Book Feed \9\ but not be transmitted to a network 
processor.\10\ Thus, pursuant to Rule 3306(c)(2) Orders with an 
aggregate size of less than one round lot at a particular price level 
are displayed in the System Book Feed, but are not transmitted to a 
network processor. For example, if the Exchange best bid is $10.00, and 
there are the following three odd-lot Orders resting displayed on the 
PSX Book with no other interest resting on the PSX Book--25 shares to 
buy at $10.00, 25 shares to buy at $9.99, and 50 shares to buy at 
$9.98--the System will not transmit any of these Orders to the 
appropriate processor, but rather will post them to the System Book 
Feed.\11\
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    \3\ Display is an Order Attribute that allows the price and size 
of an Order to be displayed to market participants via market data 
feeds. Certain Order Types may be non-displayed if they are not 
assigned a Display Order Attribute, and all non-displayed Orders may 
be referred to as ``Non-Displayed Orders'' (See Rule 
3301A(b)(3)(A)). In contrast, an Order with a Display Order 
Attribute may be referred to as a ``Displayed Order.'' See Rule 
3301B(k).
    \4\ See Securities Exchange Act Release No. 74796 (April 23, 
2015), 80 FR 23838 (April 29, 2015) (SR-NYSEArca-2015-08).
    \5\ The term ``Quote'' means a single bid or offer quotation 
submitted to the System by a Market Maker or Equities Electronic 
Communications Network and designated for display (price and size) 
next to the Participant's Market Participant Identifier in the PSX 
Book. Quotes are entered in the form of Orders with Attribution (as 
defined in Rule 3301B). Accordingly, all Quotes are also Orders. See 
Rule 3301(d).
    \6\ The term ``Order'' means an instruction to trade a specified 
number of shares in a specified System Security submitted to the 
System by a Participant. An ``Order Type'' is a standardized set of 
instructions associated with an Order that define how it will behave 
with respect to pricing, execution, and/or posting to the PSX Book 
when submitted to the System. An ``Order Attribute'' is a further 
set of variable instructions that may be associated with an Order to 
further define how it will behave with respect to pricing, 
execution, and/or posting to the PSX Book when submitted to the 
System. The available Order Types and Order Attributes, and the 
Order Attributes that may be associated with particular Order Types, 
are described in Rules 3301A and 3301B. One or more Order Attributes 
may be assigned to a single Order; provided, however, that if the 
use of multiple Order Attributes would provide contradictory 
instructions to an Order, the System will reject the Order or remove 
non-conforming Order Attributes. See Rule 3301(e).
    \7\ The term ``PSX'' or ``System'' shall mean the automated 
system for order execution and trade reporting owned and operated by 
the Exchange. See Rule 3301(a).
    \8\ The term ``System Securities'' shall mean any NMS stock, as 
defined in SEC Rule 600 except securities specifically excluded from 
trading via a list of excluded securities posted on 
www.nasdaqtrader.com. See Rule 3301(b).
    \9\ The term ``System Book Feed'' shall mean a data feed for 
System Securities, generally known as the PSX TotalView ITCH feed. 
See Rule 3301(l).
    \10\ Consequently, the Exchange currently will aggregate and 
transmit to the network processor odd-lot Orders at a particular 
price level if such Orders aggregate to at least one round lot and 
are priced better than the best-priced round lot interest on the PSX 
Book.
    \11\ The Exchange notes that the network processors only accept 
quotations in round lots. As a consequence, if aggregated Orders do 
not equal a round lot the Exchange will round down to the nearest 
round lot for purposes of reporting to the appropriate network 
processor. This proposal does not change this process.
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    The Exchange is proposing to amend Rule 3306(c)(2) to allow the 
Exchange to aggregate odd-lot sized Displayed Orders at multiple price 
points that equal at least a round lot for purposes of transmitting the 
Exchange's best ranked Displayed Order(s) to the appropriate processor. 
In assigning a price to such aggregated odd-lot Orders, the Exchange 
would use the highest (lowest) price to buy (sell) wherein the 
aggregate size of all displayed buy (sell) interest in the System 
greater (less) than or equal to that price is one round lot or greater. 
Consequently, because the aggregated Displayed odd-lot Orders represent 
the best price available on the Exchange, they would be transmitted to 
the network processor as such. Using the example above, all three odd-
lot Orders resting displayed on the PSX Book would be aggregated into a 
round lot Order and reported to the appropriate processor for quoting 
at a price of $9.98.\12\ The Exchange is proposing to amend Rule 
3306(c)(2) to add four new subparagraphs to the rule, which provide 
that the Exchange will transmit to the appropriate processor the 
highest (lowest) price to buy (sell) wherein the aggregate size of all 
displayed buy (sell) interest in the System greater (less) than or 
equal to that price is one round lot or greater, and that the aggregate 
size of all displayed buy (sell) interest in the System greater (less) 
than or equal to that price will be transmitted rounded down to the 
nearest round lot.\13\
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    \12\ The Exchange notes that it is not proposing to change how 
it processes Orders for execution. System Orders are executed in 
accordance with one of two execution algorithms: Price/Time or Pro 
Rata. See Rule 3307. Thus, Orders resting on the Exchange Book will 
be executed pursuant to the price/time execution algorithm or pro 
rata execution algorithm consistent with Rule 3307. Likewise, the 
algorithm used for execution does not affect what is provided to the 
network processor as the Exchange's best priced Order.
    \13\ Supra note 10 [sic].
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    The Exchange is also proposing to make clarifying changes to Rule 
3306(c)(2). Currently, the rule does not note that the obligation to 
report the highest (lowest) aggregate Displayed interest to buy (sell) 
arises from Rule 602 of Regulation NMS. The Exchange is amending the 
rule to affirmatively state that the transmission to the appropriate 
network processor is done pursuant to Rule 602 of Regulation NMS. The 
Exchange is also deleting the text concerning the display in the System 
Book Feed of all Quotes and Orders at the best price to buy and sell 
resident in the System that are less than one round lot. The Exchange 
believes that this text is redundant of paragraph (1) of Rule 3306(c) 
and serves no purpose under the clarified rule. The Exchange notes that 
the clarifying changes do not alter how it currently handles Quotes and 
Orders for display and trade reporting.
    The Exchange plans to implement the change proposed herein in the 
first quarter of 2019, and will announce the precise date by Equity 
Trader Alert at least thirty days prior to implementation.

[[Page 62655]]

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ 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, because the proposed change would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system by allowing the Exchange to aggregate odd lot Orders across 
multiple price levels for purposes of determining the Exchange's best 
ranked Displayed Order(s) for transmission to the appropriate network 
processor. The proposed change will provide market participants with 
greater visibility into liquidity available on the Exchange via the 
appropriate network processor. Because arriving marketable contra-side 
Orders execute in price-time priority or pro-rata priority against 
resting odd-lot Orders priced better than resting round-lot Orders, the 
Exchange believes that it is appropriate to display such odd-lot 
interest on the public data feeds as the Exchange's best bid or offer 
if in the aggregate, they equal a round lot or more. The Exchange 
further believes that aggregating such odd-lot Orders at the highest 
(lowest) price to buy (sell) wherein the aggregate size of all buy 
(sell) interest in the System greater (less) than or equal to that 
price is one round lot or greater would remove impediments to and 
perfect the mechanism of a free and open market because it represents 
the best aggregated execution price for incoming sell (buy) Orders. The 
Exchange notes that the incoming marketable interest would receive 
price improvement when executing against any odd-lot orders priced 
better than the aggregated displayed price. Last, the Exchange believes 
that the proposed clarifying changes will help promote a better 
understanding of the operation of the rule. As noted above, the 
clarifying changes do not alter how the Exchange currently handles 
Quotes and Orders for display and trade reporting.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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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 noted above, the Exchange is 
copying functionality that is currently in use by a competitor 
exchange. The proposed change may increase the Exchange's position at 
the National Best Bid and Offer, thus allowing the Exchange to receive 
greater Order flow and, consequently, executions. This is the same 
benefit that the competitor exchange has received since adopting the 
process proposed herein. Thus, the proposed change is a competitive 
response, but does not place any burden on competition because it is 
copying a process used by a competitor exchange, which was approved by 
the Commission.

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 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of 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 necessary or 
appropriate in the public interest, for the protection of investors, or 
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-2018-75 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-2018-75. 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-2018-75 and should be submitted on 
or before December 26, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Eduardo A. Aleman,
Assistant Secretary.
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    \18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-26271 Filed 12-3-18; 8:45 am]
BILLING CODE 8011-01-P