[Federal Register Volume 89, Number 59 (Tuesday, March 26, 2024)]
[Notices]
[Pages 21115-21118]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06318]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99780; File No. SR-Phlx-2024-13]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 2, 
Sections 13 and 14 and Options 8, Section 24

March 20, 2024.
    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 14, 2024, 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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[[Page 21116]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Options 2 Rules at Sections 13, and 
14 and Options 8, Section 24.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, 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
    Phlx proposes to amend its Options 2 Rules related to Options 
Market Participants at Sections 13, and 14, and an Options 8 Rule 
related to Floor Trading at Section 24. Each change will be discussed 
below.
Options 2, Section 13
    The Exchange proposes to amend Options 2, Section 13, Affiliated 
Persons of Lead Market Makers, which was previously Phlx Rule 1036 \3\ 
and titled ``Affiliated Persons of Specialists.'' SR-Phlx-2016-86 \4\ 
noted that Rule 1036(b) provided that ``no issuer, or parent or 
subsidiary thereof, or any officer, director or 10% stockholder 
thereof, may become an approved person in a specialist member 
organization whose members are registered in a security of that 
issuer.'' SR-Phlx-2020-03 also amended the term ``specialist'' to 
``Lead Market Maker'' in multiple places in the Rulebook including Phlx 
Rule 1036. The Exchange notes that the term ``specialist'' within prior 
Rule 1036, which is now Options 2, Section 13, did not refer to a Phlx 
participant also known as a ``specialist,'' rather the term referred to 
an individual that engages in market making pursuant to the Act. The 
Exchange proposes to replace the term ``Lead Market Maker'' with the 
term ``specialist'' which shall mean, for purposes of this rule, an 
individual that engages in market making pursuant to the Act. The term 
``specialist'' as utilized in the Act is broader than the term ``Lead 
Market Maker'' as described in the Exchange's rules.\5\ This proposal 
reverts the rule text language back to its original term to capture the 
universe of market makers the rule was originally intended to capture.
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    \3\ In 2020, the Exchange relocated Rule 1036 to Options 2, 
Section 13. See Securities Exchange Act Release No. 88213 (February 
14, 2020), 85 FR 9859 (February 20, 2020) (SR-Phlx-2020-03) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To 
Relocate Rules From Its Current Rulebook Into Its New Rulebook 
Shell) (``SR-Phlx-2020-03'').
    \4\ See Securities Exchange Act Release No. 78680 (August 25, 
2016), 81 FR 60110 (August 31, 2016) (SR-Phlx-2016-86) (Notice of 
Filing of Proposed Rule Change to Delete or Amend Outdated Rule 
Language) (``SR-Phlx-2016-86'').
    \5\ Pursuant to Options 1, Section 1(b)(27), a ``Lead Market 
Maker'' means a member who is registered as an options Lead Market 
Maker pursuant to Options 2, Section 12(a). A Lead Market Maker 
includes a Remote Lead Market Maker which is defined as a Lead 
Market Maker in one or more classes that does not have a physical 
presence on the Exchange's Trading Floor and is approved by the 
Exchange pursuant to Options 2, Section 11.
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Options 2, Section 14
    The Exchange proposes to reserve Options 2, Section 14, Limitations 
on Options Market Making, which was previously Rule 175.\6\ This rule 
was adopted in 2008 \7\ for XLE \8\ to address the same person or firm 
making markets in an equity security and its related option 
(``integrated market making''). Phlx Rule 175 was adopted to prevent 
the potential misuse of non-public information on XLE. The Exchange 
discontinued XLE on October 24, 2008.\9\ Phlx Rule 175 ceased to be 
operative on that date as the rule was an equity rule. The Exchange 
removed various XLE rules from the Rulebook and relocated other rules. 
Rule 175 was relocated in error into the options rules as part of a 
rule harmonization.\10\ Rule 175 should have been deleted in 2008 when 
XLE was discontinued.
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    \6\ See SR-Phlx-2020-03 which relocated Rule 175.
    \7\ See Securities Exchange Act Release No. 57683 (April 18, 
2008), 73 FR 22199 (April 24, 2008) (SR-Phlx-2008-27) (Notice of 
Filing of Proposed Rule Change Relating to Access to XLE on Phlx's 
Options Floor) (``SR-Phlx-2008-27'').
    \8\ Phlx's legacy electronic equity trading system.
    \9\ See Securities Exchange Act Release No. 58613 (September 22, 
2008), 73 FR 57181 (October 1, 2008) (SR-Phlx-2008-65).
    \10\ See SR-Phlx-2020-03.
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    At this time, the Exchange proposes to remove Options 2, Section 14 
which is not applicable to options trading.\11\ General 9, Section 
21(d) requires both options and equity members to maintain information 
barriers that are reasonably designed to prevent the misuse of 
material, non-public information by such member with any affiliates 
that may act as specialist or market maker in any security underlying 
the options for which the Participant acts as a Market Maker.\12\ With 
respect to equity trading, today, PSX Participants are subject to 
General 9, Section 21(d), which type of rule was found by the 
Commission to reduce the opportunity for unfair trading advantages.\13\
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    \11\ See Securities Exchange Act Release No. 51366 (March 14, 
2005), 70 FR 13217 (March 18, 2005) (Order Approving Proposed Rule 
Change and Amendments No. 1 and 2 Thereto by the Chicago Board 
Options Exchange, Incorporated Relating to the Introduction of 
Remote Market-Makers). Cboe addressed integrated market making in a 
rule change offering market participants the ability to stream 
electronically their own firm disseminated market quotes 
representing their trading interest. In that filing, Cboe noted that 
Remote Market-Makers (``RMMs'') who effect transactions in a 
particular option may be affiliated with market makers or 
specialists who trade the underlying security (i.e., integrated 
market making). Cboe indicated its Rule 4.18, which governed the use 
of material, non-public information, would apply to RMMs. Cboe 
represented that Rule 4.18 would require RMMs to maintain 
information barriers that are reasonably designed to prevent the 
misuse of material, non-public information by such member with any 
affiliates that may act as a specialist or market maker in any 
security underlying the options for which the CBOE member acts as an 
RMM. The Commission noted in that rule change that it believed that 
the requirement that there be an information barrier between the RMM 
and its affiliates with respect to transactions in the option and 
the underlying security served to reduce the opportunity for unfair 
trading advantages or misuse of material, non-public information.
    \12\ See also Securities Exchange Act Release No. 47838 (May 13, 
2003), 68 FR 27129 (May 19, 2003) (SR-PCX-2002-36) (Order Approving 
Proposed Rule Change and Amendment No. 1 Thereto and Notice of 
Filing and Order Granting Accelerated Approval to Amendments No. 2 
and 3 to the Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to the Exchange's New Trading Platform for Options, PCX 
Plus). PCX addressed the Commission's concerns about integrated 
market making by adopting a rule that governed the use of material, 
non-public information that was applicable to members trading on PCX 
Plus.
    \13\ See General 9, Section 21.
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Options 8, Section 24
    The Exchange proposes to amend Options 8, Section 24, Bids and 
Offers-Premium. This rule applies to the Exchange's Trading Floor. 
Specifically, the Exchange proposes to amend Options 8, Section 24(b) 
related to the solicitation of quotations. Currently, Options 8, 
Section 24 provides,

    Solicitation of Quotations. In response to a floor broker's 
solicitation of a single bid or offer the members of a trading crowd 
(including the Lead Market Maker and Floor Market Makers) may 
discuss, negotiate and agree upon the price or prices at which an 
order of a size greater than the Exchange's disseminated size can be 
executed at that

[[Page 21117]]

time, or the number of contracts that could be executed at a given 
price or prices, subject to the provisions of the Options Order 
Protection and Locked/Crossed Market Plan and the Exchange's Rules 
respecting Trade-Throughs. Notwithstanding the foregoing, a single 
crowd participant may voice a bid or offer independently from, and 
differently from, the members of a trading crowd (including the Lead 
Market Maker and Floor Market Makers).

    The Exchange proposes to amend Options 8, Section 24(b) to make 
clear that when a Floor Broker \14\ enters a trading crowd for the 
purpose of soliciting a bid or offer, the Floor Broker must clearly and 
audibly indicate they are solicitating interest for the purposes of 
price discovery and not otherwise requesting a firm bid or offer which 
would then be executed. The Exchange believes that this amendment will 
make clear that a Floor Broker must distinguish a solicitation of 
interest in the trading crowd so that a Floor Market Maker understands 
the response is in connection with a solicitation and would not result 
in a trade. The Exchange believes that the addition of this language 
will make clear to members on the trading floor the need to specify 
their intent when soliciting interest or they will otherwise be 
required to execute the trade.
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    \14\ The term ``Floor Broker'' means an individual who is 
registered with the Exchange for the purpose, while on the Options 
Floor, of accepting and handling options orders. See Options 8, 
Section 2(a)(2).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\15\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\16\ 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.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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Options 2, Section 13
    The Exchange's proposal to amend Options 2, Section 13 to revert 
the term ``Lead Market Maker'' to ``specialist'' is consistent with the 
Act and promotes just and equitable principles of trade because the 
intended term ``specialist'' pursuant to the Act is broader than the 
term ``Lead Market Maker'' and was intended to capture a broader array 
of market participants. This amendment will make clear that specialists 
must comply with the rule.
Options 2, Section 14
    The Exchange's proposal to reserve Options 2, Section 14, 
Limitations on Options Market Making, is consistent with the Act and 
removes impediments to and perfect the mechanism of a free and open 
market because the rule is not applicable to options trading.\17\ 
General 9, Section 21(d) requires both options and equity members to 
maintain information barriers that are reasonably designed to prevent 
the misuse of material, non-public information by such member with any 
affiliates that may act as specialist or market maker in any security 
underlying the options for which the Participant acts as a Market 
Maker.\18\ With respect to equity trading, today, PSX Participants are 
subject to General 9, Section 21(d), which type of rule was found by 
the Commission to reduce the opportunity for unfair trading 
advantages.\19\
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    \17\ See Securities Exchange Act Release No. 51366 (March 14, 
2005), 70 FR 13217 (March 18, 2005) (Order Approving Proposed Rule 
Change and Amendments No. 1 and 2 Thereto by the Chicago Board 
Options Exchange, Incorporated Relating to the Introduction of 
Remote Market-Makers). Cboe addressed integrated market making in a 
rule change offering market participants the ability to stream 
electronically their own firm disseminated market quotes 
representing their trading interest. In that filing, Cboe noted that 
Remote Market-Makers (``RMMs'') who effect transactions in a 
particular option may be affiliated with market makers or 
specialists who trade the underlying security (i.e., integrated 
market making). Cboe indicated its Rule 4.18, which governed the use 
of material, non-public information, would apply to RMMs. Cboe 
represented that Rule 4.18 would require RMMs to maintain 
information barriers that are reasonably designed to prevent the 
misuse of material, non-public information by such member with any 
affiliates that may act as a specialist or market maker in any 
security underlying the options for which the CBOE member acts as an 
RMM. The Commission noted in that rule change that it believed that 
the requirement that there be an information barrier between the RMM 
and its affiliates with respect to transactions in the option and 
the underlying security served to reduce the opportunity for unfair 
trading advantages or misuse of material, non-public information.
    \18\ See also Securities Exchange Act Release No. 47838 (May 13, 
2003), 68 FR 27129 (May 19, 2003) (SR-PCX-2002-36) (Order Approving 
Proposed Rule Change and Amendment No. 1 Thereto and Notice of 
Filing and Order Granting Accelerated Approval to Amendments No. 2 
and 3 to the Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to the Exchange's New Trading Platform for Options, PCX 
Plus). PCX addressed the Commission's concerns about integrated 
market making by adopting a rule that governed the use of material, 
non-public information that was applicable to members trading on PCX 
Plus.
    \19\ See General 9, Section 21.
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Options 8, Section 24
    The Exchange's proposal to amend Options 8, Section 24, Bids and 
Offers-Premium, is consistent with the Act as it clarifies the current 
rule text by requiring a Floor Broker to clearly and audibly indicate 
they are solicitating interest for the purpose of price discovery and 
not otherwise requesting a firm bid or offer. The amendment protects 
investors and the general public by requiring a Floor Broker to 
distinguish a solicitation of interest in the trading crowd so that a 
Floor Market Maker understands the response is in connection with a 
solicitation and would not result in a trade. The Exchange believes 
that the addition of this language will make clear to members on the 
trading floor the need to specify their intent when soliciting interest 
or they will otherwise be required to execute the trade.

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.
Options 2, Section 13
    The Exchange's proposal to amend Options 2, Section 13 to revert 
the term ``Lead Market Maker'' to ``specialist'' does not impose an 
undue burden on competition, rather the term makes clear that the rule 
was intended to apply to a ``specialist'' pursuant to the Act and not a 
``Lead Market Maker'' as that term is described in the Exchange's 
rules. The term would apply uniformly to all specialists.
Options 2, Section 14
    The Exchange's proposal to reserve Options 2, Section 14, 
Limitations on Options Market Making, does not impose an undue burden 
on competition because the rule would uniformly not apply to any member 
or member organization that transacts options or equities on the 
Exchange.
Options 8, Section 24
    The Exchange's proposal to amend Options 8, Section 24, Bids and 
Offers-Premium, does not impose an undue burden on competition because 
it clarifies the current rule text by requiring all Floor Brokers to 
distinguish a solicitation of interest in the trading crowd so that a 
Floor Market Maker understands the response is in connection with a 
solicitation for purposes of price discovery and would not result in a 
trade.

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.

[[Page 21118]]

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)(iii) of the Act \20\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \21\ 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 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-Phlx-2024-13 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-2024-13. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-Phlx-2024-13 and should be 
submitted on or before April 16, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06318 Filed 3-25-24; 8:45 am]
BILLING CODE 8011-01-P