[Federal Register Volume 84, Number 249 (Monday, December 30, 2019)]
[Notices]
[Pages 72017-72023]
[FR Doc No: 2019-28022]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87811; File No. SR-Phlx-2019-56]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rules
1000, 1014, 1034, 1068, 1080, 1087, 1090, and 1093

December 20, 2019.
    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 December 19, 2019, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``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 amend Rule 1000, ``Applicability,
Definitions and References,'' Rule 1014, ``Obligations of Market
Makers,'' Rule 1034, ``Minimum Increments,'' Rule 1068, ``Directed
Orders,'' Rule 1080, ``Electronic Acceptance of Quotes and

Orders,'' Rule 1087, ``Price Improvement XL (``PIXL''),'' Rule 1090,
``Mass Cancellation of Trading Interest,'' and Rule 1093 titled ``Away
Markets and Order Routing.
    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 amend Rule 1000, ``Applicability,
Definitions and References,'' Rule 1014, ``Obligations of Market
Makers,'' Rule 1034, ``Minimum Increments,'' Rule 1068, ``Directed
Orders,'' Rule 1080, ``Electronic Acceptance of Quotes and Orders,''
Rule 1087, ``Price Improvement XL (``PIXL''),'' Rule 1090, ``Mass
Cancellation of Trading Interest,'' and Rule 1093 titled ``Away Markets
and Order Routing.'' Each rule change will be discussed below.
Applicability, Definitions and References
    The Exchange proposes to define a ``bid'' and an ``offer'' within
Phlx Rule 1000(b). The Exchange proposes to state the term ``bid''
means a quote or limit order to buy one or more options contracts
within Rule 1000(b)(62). The Exchange proposes to state, the term
``offer'' means a quote or limit order to sell one or more options
contracts within Rule 1000(b)(63). The Exchange believes that the
addition of these definitions will bring greater transparency to the
Exchange's Rules.
Minimum Increments
    The Exchange proposes to amend Rule 1034 regarding minimum
increments. The Exchange proposes to reorganize and update the rule.
The Exchange proposes to create a Commentary section to Rule 1034 and
relocate all exceptions to Rule 1034(a) in the Commentary. The Exchange
would amend Rule 1034(a) to state, except as provided in the Commentary
and then also amend the words ``quoting'' to ``trading'' and eliminate
the word ``decimals.'' The Exchange notes that executions are
considered when determining the minimum price variations of options
which have prices at $3.00 or higher or are priced under $3.00. The
word ``quoting'' is not as precise as word ``trading.'' The Exchange
utilizes executions to enforce minimum increments submitted by the
member. While the word ``quoting'' is not incorrect, the Exchange
believes ``trading'' is more understandable and is similarly utilized
by Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC (``GEMX'') and Nasdaq
MRX, LLC (``MRX'') at Options 3, Section 3 of those Rulebooks.
Similarly, the Exchange is removing the word ``decimals'' and similar
to ISE, GEMX and MRX at Options 3, Section 3, stating ``at a price''
because the Exchange believes this language makes clear the intent.
These changes do not result in a System change, rather they represent
the Exchange's current System operation.
    The Exchange proposes to renumber current Rule 1034(a)(i)(A) as
Rule 1034(a)(1), without change. The Exchange proposes to renumber
current Rule 1034(a)(i)(C) as Rule 1034(a)(2) and change the words
``Phlx XL II system'' to simply the defined term ``System.'' The
Exchange proposes to renumber current Rule 1034(a)(v) as Rule
1034(a)(3) and remove the text ``However'' and instead add language to
exclude paragraph (a) similar to ISE, GEMX and MRX Rules at Options 3,
Section 3. The Exchange proposes to relocate current Rule 1034(a)(i)(b)
as Commentary .01 and add the title ``Penny Pilot Program'' before the
rule text. The Exchange proposes to relocate current Rules 1034(a)(ii),
(iii), and (iv) as Commentary .02, .03 and .04, respectively.
    The Exchange believes that these rule changes will bring greater
clarity to the Rule.
Directed Orders
    The Exchange proposes to remove rule text within Rule 1068(a)(i)(A)
with respect to Directed Orders. The current rule text provides, ``The
term ``Directed Order'' means any order (other than a stop or stop-
limit order as defined in Options 8, Section 32) to buy or sell which
has been directed to a particular Specialist, RSQT, or SQT by an Order
Flow Provider, as defined below. To qualify as a Directed Order, an
order must be delivered to the Exchange via the System.'' The Exchange
proposes to remove the limitation for a stop or stop-limit order. The
System will allow any order to be considered a Directed Order. Today,
Nasdaq ISE, LLC permits all order types to be Preferenced.\3\
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    \3\ See Nasdaq ISE, LLC Rules at Options 2, Section 10.
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Price Improvement XL (``PIXL'')
    The Exchange proposes to amend Rule 1087 to make clear at the
beginning of the Rule which provisions apply to Public Customer-to-
Public Customer Cross Orders. Today, Phlx Rule 1087(a) \4\ and (f) \5\
permit Public Customer-to-Public Customer Cross Orders to be entered
into PIXL. Today Public Customer-to-Public Customer Cross Orders may
only be entered into PIXL. This new sentence makes clear which
provisions govern Public Customer-to-Public Customer Cross Orders. The
Exchange proposes to capitalize the term ``Public Customer-to-Public
Customer Cross Orders'' within Rules 1014(e) and Rule 1080(e) to
conform to the proposed defined term.
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    \4\ Phlx Rule 1087(a) provides, ``Auction Eligibility
Requirements. All options traded on the Exchange are eligible for
PIXL. A member (the ``Initiating Member'') may initiate an Auction
provided all of the following are met:'' . . . Pursuant to Rule
1087(f), the Exchange will allow a Public Customer-to-Public
Customer PIXL Order to trade on either the bid or offer, if the NBBO
is $0.01 wide, provided (1) the execution price is equal to or
within the NBBO, (2) there is no resting Public Customer at the
execution price, and (3) $0.01 is the Minimum Price Variation (MPV)
of the option. The Exchange will continue to reject a PIXL Order to
buy (sell) if the NBBO is only $0.01 wide and the Agency order is
stopped on the bid (offer) if there is a resting order on the bid
(offer).''
    \5\ Phlx Rule 1087(f) provides, ``In lieu of the procedures in
paragraphs (a)-(b) above, an Initiating Member may enter a PIXL
Order for the account of a Public Customer paired with an order for
the account of a Public Customer and such paired orders will be
automatically executed without a PIXL Auction, provided there is not
currently an Auction in progress in the same series or same
strategy, in which case the orders will be rejected. The execution
price for such a PIXL Order (except if it is a Complex Order) must
be expressed in the quoting increment applicable to the affected
series. Such an execution may not trade through the better of the
NBBO or Reference BBO or at the same price as any resting Public
Customer order. The execution price for such a Complex Order PIXL
may be in .01 increments and may not trade at a price equal to or
through the cPBBO or at the same price as a resting Public Customer
Complex Order.''
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Mass Cancellation of Trading Interest
    The Exchange proposes to adopt a new Rule 1090 titled ``Mass
Cancellation of Trading Interest.'' The Nasdaq Options Market LLC
(``NOM'') and Nasdaq BX, Inc. (``BX'') Rules at Chapter VII, Section 11
permit Participants on those markets to contact market operations and
manually request

cancellation of interest. The Exchange proposes to adopt a rule which
also permits members to contact market operations and request the
Exchange to manually cancel interest. The proposed new rule would
state, ``A member may cancel any bids, offers, and orders in any series
of options by requesting Phlx Market Operations \6\ staff to effect
such cancellation as per the instructions of the Member.'' This new
rule reflects the Exchange's current practice of allowing members to
contact Phlx Market Operations and request the Exchange to cancel any
bid, offer or order in any series of options. The Exchange would cancel
such bid, offer or order pursuant to the member's instruction. The
Exchange desires to memorialize the availability of this service.
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    \6\ The request to Market Operations is a manual request which
is made telephonically.
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Routing
    The Exchange filed a proposal to amend Rule 1093 \7\ as ``Away
Markets and Order Routing'' in April 2019.\8\ At this time the Exchange
proposes further amendment to this rule to mirror changes that were
proposed to NOM's Rule at Chapter VI, Section 11.\9\ The changes
proposed herein are not changes to the System, rather the Exchange
proposes to add other scenarios that may be possible during Routing and
make the current rule text more clear to provide market participants
with clear expectations regarding orders that are marked ``DNR'' and
orders that route.
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    \7\ The Exchange notes that the amendments to Rule 1093 reflect
the current operation of the System. The purpose of the amendment is
to align the rule to the specific operation of the routing
functionality on Phlx.
    \8\ See Securities Exchange Act Release No. 85655 (April 16,
2019), 77 FR 16709 (April 22, 2019) (SR-Phlx-2019-06).
    \9\ See Securities Exchange Act Release No. 87030 (September 19,
2019), 84 FR 50495 (September 25, 2019) (SR-NASDAQ-2019-077).
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    Currently, Rule 1093(a) states, ``When checking the Order Book, the
System will seek to execute at the price at which it would send the
order to an away market.'' The Exchange proposes to remove this
sentence because the price at which the order would route in explained
in greater detail within Rule 1093(a)(iii). Also, this sentence is
confusing because the price at which an order would execute is
dependent on the scenario within which an order would route. Removing
this sentence will remove any confusion related to the price at which
the order would route.
    The Exchange proposes to amend rule text within Rule
1093(a)(iii)(A) related to DNR Orders. Today, current rule text
provides, ``Any incoming order interacting with such a resting DNR
order will execute at the ABBO price, unless the ABBO is improved to a
price which crosses the DNR's displayed price, in which case the
incoming order will execute at the previous ABBO price.'' The Exchange
proposes to amend this language to: (1) Clarify the current scenario to
more accurately capture the order of events; and (2) add another
scenario that is not contemplated by the current rule text.
    The Exchange proposes to clarify the current rule text to provide,
``Any incoming order interacting with such a resting DNR Order will
execute at the ABBO price, unless (1) the ABBO is improved to a price
which crosses the DNR Order's already displayed price, in which case
the incoming order will execute at the previous ABBO price as the away
market crossed a displayed price . . .''. This proposed new text
intends to make clear that if the Exchange's System is executing an
incoming order against a resting DNR Order which is displayed, it would
not consider an updated ABBO which crossed the displayed DNR Order. The
System would not take into account the away market order or quote which
crossed the DNR Order's displayed price. The Exchange is not trading-
through an away market in this scenario, rather an away market is
crossing Phlx's displayed market and therefore that market has the
obligation not to trade-through Phlx's displayed price. A similar
change is being made to the last sentence of Rule 1093(a)(iii)(B)(5)
for FIND Orders and the last sentence Rule 1093(a)(iii)(C)(6) for SRCH
Orders. By way of example, consider the following sequence of events in
the System:

9:45:00:00:00--MIAX Quote 0.95 x 1.20
9:45:00:00:10--OPRA updates MIAX BBO 0.95 x 1.20
9:45:00:00:20--Phlx Local BBO Quote 1.00 x 1.15
9:45:00:00:30--OPRA disseminates PHLX BBO updates: 1.10 x 1.15
9:45:00:00:35: CBOE Quote 1.00 x 1.12
9:45:00:00:45--OPRA disseminates CBOE BBO 1.00 x 1.12
9:45:00:00:50--DNR Order: Buy 5 @ 1.15 (exposes @ ABBO of 1.12,
displays 1 MPV from ABBO @ 1.11)
9:45:00:00:51--OPRA disseminates PHLX BBO updates: 1.11 x 1.15 (1.11
being the DNR Order displaying 1 MPV from ABBO)
9:45:00:00:60--MIAX Quote updates to 1.00 x 1.10 (1.10 crosses the
displayed DNR Order price, violating locked/crossed market rules;
henceforth, we need not protect this price)
9:45:00:00:65--OPRA disseminates MIAX BBO 1.00 x 1.10
9:45:00:00:75--Phlx Market Maker Order to Sell 5 @ 1.09
9:45:00:00:76--Market Maker Order immediately executes against DNR
Order 5 contracts @ 1.12 (1.12 being the `previous' ABBO price
disseminated by CBOE before the receipt of the DNR Order that was
subsequently and illegally crossed by MIAX's 2nd quote)
9:45:00:00:77--OPRA disseminates PHLX BBO updates: 1.10 x 1.15 (reverts
back to BBO set by Phlx Local Quote since the DNR Order has executed)

    The Exchange also proposes to add a new scenario to the above-
referenced sentence to state, ``or (2) the ABBO is improved to a price
which locks the DNR Order's displayed price, in which case the incoming
order will execute at the DNR Order's displayed price.'' The Exchange
is adding the scenario where the ABBO is improved to a price which
locks the DNR Order's displayed price. In this added scenario, the
incoming order will execute at the DNR Order's displayed price. The
Exchange notes that this scenario is not contained in the current rule
text. Adding this scenario is consistent with the Act because it will
bring greater transparency to the routing rule and inform members about
this potential outcome if a member elects to mark their order as
``DNR.''
    The Exchange also proposes to amend the next sentence within Rule
1093(a)(iii)(A) which currently provides, ``Should the best away market
change its price to an inferior price level, the DNR Order will
automatically re-price from its one minimum price variation inferior to
the original away best bid/offer price to one minimum trading increment
away from the new away best bid/offer price or its original limit
price, and expose such orders at the ABBO to participants only if the
re-priced order locks or crosses the ABBO. Once priced at its original
limit price, it will remain at that price until executed or
cancelled.'' The Exchange proposes to amend this rule text to provide,
``Should the best away market move to an inferior price level, the DNR
Order will automatically re-price from its one MPV inferior to the
original ABBO and display one MPV away from the new ABBO or its
original limit price, and expose such orders at the new ABBO only if
the re-priced order locks or crosses the new ABBO.'' The Exchange is
amending the current rule text to replace the phrase ``change its
price'' with ``move'' and use the defined term ``MPV.'' The Exchange is
further amending this sentence to expand on the re-pricing. In this
scenario, the

Exchange has already re-priced the DNR Order and is re-pricing the DNR
Order again because the best away market moved to an inferior price
level. In this situation, the DNR Order will automatically re-price
from its one MPV inferior to the original ABBO and display one MPV away
from the new ABBO price or its original limit price. The DNR Order will
also expose such orders at the new ABBO, only if the re-priced order
locks or crosses the new ABBO. Once booked at its original limit price,
it will remain at that price until executed or cancelled. The Exchange
believes that this language provides more context to the manner in
which a DNR Order will be handled by the Exchange's System. The
Exchange believes that this additional rule text is consistent with the
Act as the DNR Order is exposed at the re-priced price if the Order
locked or crossed the ABBO. Additionally, orders marked ``DNR'' would
book at their original limit price and remain on the Order Book.
Providing this additional transparency will assist members in
determining if they want their orders routed.
    As noted above, these changes to the DNR Orders represent current
System functionality. The Exchange also proposes to capitalize the term
``Order'' within Rule 1093(a)(iii)(A).
    With respect to FIND Orders within Rule 1093(a)(iii)(B) as well as
SRCH Orders within Rule 1093(a)(iii)(C) the Exchange proposes to add a
scenario that is not currently contemplated within the Rule.
Specifically, the Exchange proposes to add a scenario that provides, if
during the Route Timer, the ABBO markets move such that the FIND Order
or SRCH Order is no longer marketable against the ABBO it provides the
various scenarios that may occur. The FIND Order or SRCH Order may: (i)
Trade at the next PBBO price (or prices) if the FIND Order SRCH Order
price is locking or crossing that price (or prices), and/or (ii) be
entered into the Order Book at its limit price if not locking or
crossing the PBBO. A FIND Order or SRCH Order will be included in the
displayed PBBO at its limit price, unless the FIND Order or SRCH Order
locks or crosses the ABBO, in which case it will be entered into the
Order Book at the ABBO price and displayed one MPV inferior to the
ABBO. Further, the Exchange proposes a scenario where there exists a
locked ABBO when the FIND Order or SRCH Order is entered onto the Order
Book, the FIND Order or SRCH Order will be entered into the Order Book
at the ABBO price and displayed one MPV inferior to the ABBO. If during
the Route Timer any new interest arrives opposite the FIND Order or
SRCH Order that is marketable against the FIND Order or SRCH Order such
interest will trade against the FIND Order or SRCH Order at the ABBO
price unless the ABBO is improved to a price which crosses the FIND
Order's or SRCH Order's displayed price, in which case the incoming
order will execute at the previous ABBO price as the away market
crossed a displayed price. The above example for a DNR Order is
applicable to the FIND Order and SRCH Order as well.
    The Exchange offers the following example when there exists a
locked ABBO at the time the FIND Order or SRCH Order is entered into
the Order Book to demonstrate the manner in which Phlx posts and
displays a FIND Order or SRCH Order. In this example, assume Away
Market A has displayed its market at 1.00 x 1.20. Subsequent to Away
Market A displaying it market, Away Market B displays its market at .80
x 1.00. The option series is now locked at 1.00. Next, assume Phlx
receives a FIND Order or SRCH Order at $2.00 to buy. In this example,
Phlx would post the FIND Order or SRCH Order into the Phlx Order Book
at $1.00 to buy and display the FIND Order at $0.95 to avoid locking
the market in this option series.
    The addition of this language to the FIND Order and SRCH Order rule
text represents current System functionality. This scenario is not
currently described within the current routing rule with respect to
either a FIND Order or a SRCH Order that is not marketable after a
Route Timer has commenced. The Exchange's rule seeks to provide members
with the specific handling of a routable order in various scenarios
during intra-day trading. The Exchange believes that the addition of
this scenario is consistent with the Act. The FIND Order or SRCH Order,
once it is not marketable against the ABBO, will trade at the next PBBO
if the order is locked or crossed. The FIND Order or SRCH Order would
book at its limit price, provided it is not locking or crossing the
PBBO. The Exchange's rule must account for trade-through and will
consider potential executions for the order consistent with routing
instructions. The proposed rule text describes scenarios where it will
be displayed at one MPV inferior to the ABBO or display at the locked
ABBO price, as described in the above example. This rule text also is
intended to demonstrate that if the ABBO is improved to a price which
crosses the FIND Order's displayed price, the incoming order will
execute at the previous ABBO price. The Exchange believes that this
rule text will bring greater clarity to the Exchange's Rules.
Other Amendment
    The Exchange also proposes to amend Rule 1096, Entry and Display of
Orders, to correct the citation of Rule 1099 to Rule 1070.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\11\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest because the Exchange is adding more detail to
its routing rule to provide market participants with greater
transparency. The Exchange believes the added scenarios will provide
more context to routing in general and for the specific routing
strategies for the benefit of investors and the public interest. The
Exchange continues to offer various choices to its market participants
with respect to routing.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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Applicability, Definitions and References
    The Exchange's proposal to define a ``bid'' and an ``offer'' within
Phlx Rule 1000(b) is consistent with the Act as these terms will bring
greater transparency to the Exchange's Rules.
Minimum Increments
    The Exchange's proposal to amend Rule 1034 to reorganize and update
the rule is consistent with the Act because the change to the rule text
as well as reorganized format should make clear the standards for
minimum increments. The amendment to Rule 1034(a) to replace the word
``quoting'' to ``trading'' will make the rule text more precise as
executions are considered for enforcement of minimum increments.
Removing the word ``decimals'' and discussing price is also more
precise rule text. The Exchange also notes that the proposed rule text
conforms the wording to similar wording within Nasdaq ISE, LLC, Nasdaq
GEMX, LLC and Nasdaq MRX, LLC Options 3, Section 3. These changes do
not result in a System change, rather they represent the Exchange's
current System operation. The remainder of the amendments to reorganize
and renumber the Rule are non-substantive. The Exchange believes that
these amendments will bring greater clarity to the Rule.

Directed Orders
    The Exchange's proposal to remove rule text within Rule
1068(a)(i)(A) will make clear that, today, both stop and stop-limit
orders can be directed to a particular Specialist, RSQT, or SQT by an
Order Flow Provider. The rule text limitation is not accurate because
the System permits a stop and stop-limit order to be directed. Removing
the limitation and allowing all order types to be directed allows
members greater flexibility in choosing how to submit their orders. The
Exchange notes that this amendment is consistent with the Act because
the Exchange is not limiting the use of the stop order as a Directed
Order. Today, Nasdaq ISE, LLC permits all order types to be
Preferenced.\12\
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    \12\ See Nasdaq ISE, LLC Options 2, Section 10.
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Price Improvement XL (``PIXL'')
    The Exchange's proposal to amend Rule 1087 to point out at the top
of the Rule which provisions apply to Public Customer-to-Public
Customer Cross Orders will make the Rule clear. Today, Phlx Rule
1087(a) \13\ and (f) \14\ permit Public Customer-to-Public Customer
Cross Orders to be entered into PIXL. This amendment is consistent with
the Act because market participants will be more aware of which
provisions govern Public Customer-to-Public Customer Cross Orders.
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    \13\ Phlx Rule 1087(a) provides, ``Auction Eligibility
Requirements. All options traded on the Exchange are eligible for
PIXL. A member (the ``Initiating Member'') may initiate an Auction
provided all of the following are met:''. . . Pursuant to Rule
1087(f), the Exchange will allow a Public Customer-to-Public
Customer PIXL Order to trade on either the bid or offer, if the NBBO
is $0.01 wide, provided (1) the execution price is equal to or
within the NBBO, (2) there is no resting Public Customer at the
execution price, and (3) $0.01 is the Minimum Price Variation (MPV)
of the option. The Exchange will continue to reject a PIXL Order to
buy (sell) if the NBBO is only $0.01 wide and the Agency order is
stopped on the bid (offer) if there is a resting order on the bid
(offer).''
    \14\ Phlx Rule 1087(f) provides, ``In lieu of the procedures in
paragraphs (a)-(b) above, an Initiating Member may enter a PIXL
Order for the account of a Public Customer paired with an order for
the account of a Public Customer and such paired orders will be
automatically executed without a PIXL Auction, provided there is not
currently an Auction in progress in the same series or same
strategy, in which case the orders will be rejected. The execution
price for such a PIXL Order (except if it is a Complex Order) must
be expressed in the quoting increment applicable to the affected
series. Such an execution may not trade through the better of the
NBBO or Reference BBO or at the same price as any resting Public
Customer order. The execution price for such a Complex Order PIXL
may be in .01 increments and may not trade at a price equal to or
through the cPBBO or at the same price as a resting Public Customer
Complex Order.''
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Mass Cancellation of Trading Interest
    The Exchange's proposal to memorialize the Mass Cancellation of
Trading Interest rule within Options 3, Section 19 is consistent with
the Act because permitting Members to contact Market Operations as a
manual alternative to automated functionality which similarly allows
Members to cancel interest provides Members experiencing their own
system issues with a means to manage risk. Today, Members are able to
cancel interest, in an automated fashion through protocols \15\ and the
Kill Switch.\16\ This is a voluntary services offered to all members.
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    \15\ See Options 3 at Supplementary Material .03 to Section 7.
    \16\ See Rule 1073.
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    The Exchange notes that offering this service, which permits
members to cancel interest, will not diminish a Registered Options
Trader's obligation with respect to providing two-sided quotations and
this rule is not inconsistent with other firm quote obligations of the
Registered Options Trader. Upon the request of a member, Phlx Market
Operations will manually input a mass cancellation message into the
System consistent with the member's instruction to cancel trading
interest. Once the mass cancellation message is entered into the System
by Phlx Market Operations, the message will be accepted by the System
in the order of receipt in the queue such that the interest that was
already accepted into the System will be processed prior to the mass
cancellation message. In addition, mass cancellation messages entered
into the System by Phlx Market Operations are handled by the System
through the same queuing mechanism that a quote or order message is
handled by the System. The Exchange notes its processing of a mass
cancellation message inputted by Phlx Market Operations and handled by
the System is consistent with firm quote and order handling rules.
    As noted above, NOM and BX Rules at Chapter VII, Section 11 allow
NOM and BX Participants to also contact market operations and request
cancellations of interest. This new rule reflects the Exchange's
current practice.
Routing
    The Exchange's proposal to remove the following sentence from Rule
1093(a), ``When checking the Order Book, the System will seek to
execute at the price at which it would send the order to an away
market,'' is consistent with the Act because this sentence is vague.
The price at which an order would execute is dependent on the scenario
within which an order would route. Removing this sentence will remove
any confusion related to the price at which the order would route. The
proposed rule would also add additional detail about the scenarios
under which an order would route away.
    The Exchange's proposal to amend the sentence within Rule
1093(a)(iii)(A) related to DNR Orders which provides, ``Any incoming
order interacting with such a resting DNR order will execute at the
ABBO price, unless the ABBO is improved to a price which crosses the
DNR's displayed price, in which case the incoming order will execute at
the previous ABBO price,'' is consistent with the Act. The Exchange
proposes to amend this rule text to clarify the current rule text and
add another scenario that is not currently within the rule text. The
Exchange proposes to state, ``Any incoming order interacting with such
a resting DNR order will execute at the ABBO price, unless (1) prior to
execution, while the incoming order is matched with the resting DNR
Order, the ABBO is improved to a price which crosses the DNR's
displayed price, in which case the incoming order will execute at the
ABBO price which was available upon arrival of the incoming order which
matched with the DNR Order; or (2) the ABBO is improved to a price
which locks the DNR's displayed price, in which case the incoming order
will execute at the DNR's displayed price.'' The System would not take
into account the away market order or quote which crossed the DNR's
displayed price. The Exchange is not trading-through an away market in
this scenario, rather an away market is crossing Phlx's displayed
market and therefore that market has the obligation not to trade-
through Phlx's displayed price.
    The Exchange is also adding a scenario where the ABBO is improved
to a price which locks the DNR's displayed price. In this added
scenario, the incoming order will execute at the DNR's displayed price.
The Exchange notes that this scenario is not contained in the current
rule text. Adding this scenario is consistent with the Act because it
will bring greater transparency to the routing rule and inform members
about this potential outcome if a member elects to mark their order as
DNR. Additionally, amending a sentence \17\ within Rule

1093(a)(iii)(A) to provide, ``Should the best away market move to an
inferior price level, the DNR Order will automatically re-price from
its one MPV inferior to the original ABBO and display one MPV away from
the new ABBO or its original limit price, and expose such orders at the
new ABBO only if the re-priced order locks or crosses the new ABBO'' is
consistent with the Act because the additional language expands on the
current re-pricing that exists today. The Exchange believes that this
language provides more context to the manner in which a DNR Order will
be handled by the Exchange's System. The Exchange believes that this
additional rule text is consistent with the Act as the DNR Order would
re-price again from its one MPV inferior to the original ABBO because
the best away market moved to an inferior price level. The DNR Order
would display one MPV away from the new ABBO price or its original
limit price. Also, the DNR Order would expose such orders at the new
ABBO, only if the re-priced order locks or crosses the new ABBO. Once
booked at its original limit price, it will remain on the Order Book at
that price until executed or cancelled. Providing this additional
transparency will assist members in determining if they want their
orders routed.
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    \17\ The current sentence within Rule 1093(a)(iii)(A) states,
``Should the best away market change its price to an inferior price
level, the DNR Order will automatically re-price from its one
minimum price variation inferior to the original away best bid/offer
price to one minimum trading increment away from the new away best
bid/offer price or its original limit price, and expose such orders
at the ABBO to participants only if the re-priced order locks or
crosses the ABBO.''
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    With respect to FIND Orders within Rule 1093(a)(iii)(B) as well as
SRCH Orders within Rule 1093(a)(iii)(C) the amendments are consistent
with the Act as they propose a scenario that is not currently within
the Rules. The Exchange proposes to add a scenario that provides, if
during the Route Timer, the ABBO markets move such that the FIND Order
or SRCH Order is no longer marketable against the ABBO it provides the
various scenarios that may occur. Also, if there exists a locked ABBO
when the FIND Order or SRCH Order is entered onto the Order Book and if
during the Route Timer any new interest arrives opposite the FIND Order
or SRCH Order that is marketable against the FIND Order or SRCH Order.
Scenarios are provided for each of these situations within the new rule
text. The new text seeks to clearly provide a member with the specific
handling of a routable order for various scenarios during intra-day
trading. The Exchange believes that the addition of these scenarios is
consistent with the Act as the order, which was marked routable as
either a FIND Order or SRCH Order, once it is not marketable against
the ABBO, will either trade at the next PBBO, if the order locks or
crosses the FIND Order or SRCH Order, or it would be booked at its
limit price, providing it is not locking or crossing the PBBO. The
Exchange's rule must account for trade-through and will consider
potential executions for an order consistent with routing instructions.
The Exchange believes that this rule text will bring greater clarity to
the Exchange's Rules.
    The amendments to Phlx Rule 1093 represent current System
functionality. These rules are similar to current rule text on NOM at
Chapter VI, Section 11.\18\
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    \18\ See Securities Exchange Act Release No. 87030 (September
19, 2019), 84 FR 50495 (September 25, 2019) (SR-NASDAQ-2019-077).
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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.
Applicability, Definitions and References
    The Exchange's proposal to define a ``bid'' and an ``offer'' within
Phlx Rule 1000(b) does not impose an undue burden on competition,
rather these terms will bring greater transparency to the Exchange's
Rules.
Minimum Increments
    The Exchange's proposal to amend Rule 1034 to reorganize and update
the rule does not impose an undue burden on competition because all
market participants are subject to Rule 1034. The language will
properly reflect that the standard for submitting orders with minimum
increments into the System. The remainder of the amendments to
reorganize and renumber the Rule are non-substantive.
Directed Orders
    The Exchange's proposal to remove rule text within Rule
1068(a)(i)(A) does not impose an undue burden on competition as Stop
Order and Stop-Limit Orders may be Directed Orders similar to all other
order types. Removing the limitation and allowing all order types to be
directed allows members greater flexibility in choosing how to submit
their orders.
Price Improvement XL (``PIXL'')
    The Exchange's proposal to amend Rule 1087 to point out at the top
of the Rule which provisions apply to Public Customer-to-Public
Customer Cross Orders does not impose an undue burden on competition.
This rule change will make market participants more aware of which
provisions govern Public Customer-to-Public Customer Cross Orders.
Mass Cancellation of Trading Interest
    The Exchange's proposal to memorialize the Mass Cancellation of
Trading Interest rule within Rule 1090 does not impose an undue burden
on competition because all members may utilize this service. This new
rule reflects the Exchange's current practice.
Routing
    The Exchange believes that adding greater detail to its rules
concerning routing of orders does not impose an undue burden on
competition, rather it provides greater transparency as to the
potential outcomes when utilizing different routing strategies.
Further, the Exchange notes that market participants may elect not to
route their orders. The Exchange continues to offer various options to
its market participants with respect to routing.

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 \19\ and Rule 19b-
4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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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    A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \22\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the

Commission to waive the 30-day operative delay so that the proposed
rule change may become effective and operative immediately upon filing.
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest, as
it will allow the Exchange to immediately provide members with greater
information and transparency on mass cancellation procedures and order
routing strategies available on the Exchange. For this reason, the
Commission hereby waives the 30-day operative delay and designates the
proposed rule change as operative upon filing.\23\
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    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 change 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_ADDRESS>Please include
File Number SR-Phlx-2019-56 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-2019-56. 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-2019-56 and should be submitted on
or before January 21, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28022 Filed 12-27-19; 8:45 am]
BILLING CODE 8011-01-P