Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend PIXL and Adopt New Auctions

Federal RegisterAug 13, 2025

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-103667; File No. SR-Phlx-2025-35]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend PIXL and Adopt New Auctions

August 8, 2025.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),

and Rule 19b-4 thereunder,

notice is hereby given that on August 5, 2025, 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, 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.

15 U.S.C. 78s(b)(1).

17 CFR 240.19b-4.

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

In connection with a technology migration to an enhanced Nasdaq, Inc. (“Nasdaq”) functionality, to adopt the following new auctions: Block Order Mechanism, Facilitation Mechanism and Solicited Order Mechanism in Options 3, Section 11. The Exchange also proposes to permit Customer Cross Orders at Options 3, Section 12(a) and Complex Cross Orders at Options 3, Section 12(b) to transact outside of the current Price Improvement XL (“PIXL”) mechanism where these orders currently transact. The Exchange proposes to amend Qualified Contingent Cross (“QCC”) Orders and Complex QCC Orders at Options 3, Section 12 and Options 3, Section 30 to align these rules to ISE Options 3, Section 12(a) and (b). The Exchange proposes to amend the PIXL rules at Options 3, Section 13 to align certain functionality to Nasdaq ISE LLC (“ISE”) PIM at Options 3, Section 13. Finally, the Exchange proposes amendments to Options 3, Section 7, Types of Orders and Order and Quote Protocols; Options 3, Section 10, Electronic Execution Priority and Processing in the System; Options 3, Section 14, Complex Orders; Options 3, Section 16. Complex Order Risk Protections; and Options 3, Section 22, Limitations on Order Entry, in connection with the aforementioned changes. The Exchange also proposes an amendment to Options 2, Section 10, Directed Orders and Options 5, Section 4, Order Routing.

The text of the proposed rule change is available on the Exchange's website at

https://listingcenter.nasdaq.com/rulebook/phlx/rulefilings,

and at the principal office of the Exchange.

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

In connection with a technology migration to an enhanced Nasdaq functionality which will result in higher performance, scalability, and more robust architecture, the Exchange proposes to amend and adopt functionality identical to the functionality on ISE.

The Exchange proposes to adopt the following new auctions: Block Order Mechanism, Facilitation Mechanism and Solicited Order Mechanism in Options 3, Section 11. The proposed Block Order Mechanism at Options 3, Section 11(a) is identical to ISE's Block Order Mechanism at ISE Options 3, Section 11(a). Phlx's proposed Facilitation Mechanism and Solicited Order Mechanism at Options 3, Section 11 are substantively identical to ISE's Facilitation Mechanism and Solicited Order Mechanism at Options 3, Section 11. With respect to Phlx's proposed Facilitation Mechanism and Solicited Order Mechanism, the Exchange will allocate interest pursuant to Phlx Options 3, Section 10

whereas ISE allocates pursuant to its allocation rules at Options 3, Section 10.

Phlx recently amended Options 3, Section 10.

See

Securities Exchange Act Release No. 101989 (December 30, 2024), 89 FR 106888 (December 30, 2024) (SR-Phlx-2024-71). SR-Phlx-2024-71 is effective but not yet operative. SR-Phlx-2024-71 would be operative at the same time as this rule change as they are both part of the same technology migration.

Phlx's allocation model is different than ISE's in that Phlx allocates to Market Makers before allocating to all other market participants pursuant to Phlx Options 3, Section 10 while ISE does not have an additional allocation to Market Makers before all other market participants pursuant to ISE Options 3, Section 10.

The Exchange also proposes relocating its Customer Cross Orders at Options 3, Section 12(a) and Complex Cross Orders at Options 3, Section 12(b) to transact outside of the current PIXL mechanism where these orders currently transact. The Exchange proposes to adopt rule text that is identical to ISE Options 3, Section 12(a) and (b).

Phlx rules are identical to ISE rules except for the use of certain terms. Phlx's Public Customer, defined at Phlx Options 1, Section 1(b)(46), provides that the term “Public Customer” means a person or entity that is not a broker or dealer in securities and is not a Professional as defined within Options 1, Section (b)(45). This term has the same meaning as ISE's Priority Customer, defined at ISE Options 1, Section 1(a)(37). The term “Priority Customer” means a person or entity that (i) is not a broker or dealer in securities, and (ii) does not place more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s). Also, Phlx utilizes the terms “member” and “member organization.” The term “member” means a permit holder which has not been terminated in accordance with the By-Laws and these Rules of the Exchange. A member is a natural person and must be a person associated with a member organization. Any references in the rules of the Exchange to the rights or obligations of an associated person or person associated with a member organization also includes a member.

See

General 1, Section 1(a)(16) The term “member organization” means a corporation, partnership (general or limited), limited liability partnership, limited liability company, business trust or similar organization, transacting business as a broker or a dealer in securities and which has the status of a member organization by virtue of (i) admission to membership given to it by the Membership Department pursuant to the provisions of General 3, Sections 5 and 10 or the By-Laws or (ii) the transitional rules adopted by the Exchange pursuant to Section 6-4 of the By-Laws. References herein to officer or partner, when used in the context of a member organization, shall include any person holding a similar position in any organization other than a corporation or partnership that has the status of a member organization.

See

General 1, Section 1(a)(17). ISE utilizes the term “Electronic Access Member” which is the equivalent of Phlx's term “member organization.” The term “Electronic Access Member” or “EAM” means a Member that is approved to exercise trading privileges associated with EAM Rights.

See

General 1, Section 1(a)(6). The Exchange utilizes the term “identical” throughout this rule proposal despite these definitional differences.

The Exchange proposes to amend its Qualified Contingent Cross or “QCC” Orders and Complex QCC Orders at Options 3, Section 12 and Options 3, Section 30 to adopt rule text that is identical to ISE Options 3, Section 12(a) and (b). The proposed changes to QCC Orders at Options 3, Section 12 and Complex QCC Orders at Options 3, Section 12 would apply equally to electronic QCC Orders and Floor QCC Orders. The Exchange is not amending the System handling of electronic QCC Orders. With respect to Floor QCC

Orders, the System handling will remain the same except that the Exchange is amending the minimum increments at proposed Options 8, Section 30(e).

The Exchange proposes to amend the PIXL rules at Options 3, Section 13 so that its rules are similar to ISE PIM at Options 3, Section 13.

The Exchange notes that it will adopt certain aspects of ISE's PIM but not all aspects of the rule. Phlx proposed PIXL entry checks at Options 3, Section 13(b)(1)-(3) are identical to ISE Options 3, Section 13(b)(1)-(3). Phlx proposed Options 3, Section 13(b)(1)(A) related to PAN responses is substantially similar to Options 3, Section 13(d)(7). Phlx Options 3, Section 13(b)(1)(B) related to Surrender proposes a configurable Surrender provision that is substantially similar to ISE Options 3, Section 13(e)(5)(iii). Phlx proposed Options 3, Section 13(b)(1)(C) concerning a PAN proposes to disseminate “price” in addition to side, size, and options series similar to ISE Options 3, Section 13(c). Phlx proposed Options 3, Section 13(b)(1)(H) regarding capping a PAN response size is substantially similar to ISE Options 3, Section 13(c)(2). The proposed Complex early termination provisions in Phlx Options 3, Section 13(b)(2)(C)(2) are identical to ISE Options 3 Sections 13 (e)(4)(iv)(C), (e)(4)(iv)(D), (e)(5)(iv). The proposed trade halt rule text at Phlx Options 3, Section 13(b)(3) is substantially similar to Options 3, Section 13(d)(5). Phlx proposed rule text to amend the System allocation to the Initiating member after Public Customer orders have been allocated in Options 3, Section 13(b)(5)(B)(i) is identical to ISE Options 3, Section 13(d)(3) and Options 3, Section 13(e)(5)(iii).

The Exchange proposes amendments to Options 3, Section 7, Types of Orders and Order and Quote Protocols, to adopt order types identical to ISE Options 3, Section 7.

The Exchange proposes adopting applicability language in Options 3, Section 10, Electronic Execution Priority and Processing in the System, at subsection (b) that is identical to ISE Options 3, Section 10(a)(2).

The Exchange proposes adopting a Complex Facilitation Order type and a Complex SOM Order at Options 3, Section 14(b)(16) and (17) that are identical to order types at ISE Options 3, Section 14(b)(16) and (17).

The Exchange proposes to make non-substantive technical amendments at Options 3, Section 15, Simple Order Risk Protections.

The Exchange proposes to amend Options 3, Section 16, Complex Order Risk Protections, at subsection (b), to add proposed new order types identical to the rule text at ISE Options 3, Section 16(b).

The Exchange proposes to amend Options 3, Section 22, Limitations on Order Entry, to add the new auctions proposed herein to the rule text so that the rule text is identical to ISE Options 3, Section 22.

The Exchange proposes to amend Options 8, Section 30, Crossing, Facilitation and Solicited Orders, to amend its Floor QCC rules to align to the changes in its electronic QCC Order rule at Options 3, Section 12. The Exchange notes that while Phlx has a trading floor, ISE does not have a trading floor. The Options 3 rule amendments only apply to electronic orders and do not otherwise amend the trading floor rules which are located in Options 8. Specifically, the proposed amendments to Options 8, Section 30, related to the trading floor, would align to proposed Options 3, Section 12.

In 2011, Phlx proposed to establish a Floor QCC based on the precedent of ISE's QCC Order. PHLX previously established an electronic QCC Order set forth in PHLX Rule 1080(o).

See

Securities Exchange Act Release No. 64249 (April 7, 2011), 76 FR 20773 (April 13, 2011) (SR-Phlx-2011-047). As part of that rule change, Phlx analyzed the application of Section 11(a) to various Exchange systems and order types. In analyzing Floor QCC Orders, the Exchange has concluded that the entry and execution of Floor QCC Orders raises no novel issues under Section 11(a) and the rules thereunder from a compliance, surveillance or enforcement perspective. In other words, Exchange Floor Brokers are currently required to comply and the Exchange surveils for compliance with Section 11(a) and the rules thereunder when using Exchange systems to effect transactions using existing order types, and they will be required to comply with Section 11(a) and the rules thereunder when using the Floor QCC Order.

See

Securities Exchange Act Release No. 64415 (May 5, 2011), 76 FR 27732 (May 12, 2011) (SR-Phlx-2011-56) (Notice of Filing of Proposed Rule Change To Establish a Qualified Contingent Cross Order for Execution on the Floor of the Exchange).

The Exchange also proposes an amendment to Options 2, Section 10, Directed Orders, and Options 5, Section 4, Order Routing. Each of the aforementioned rule changes are described below.

Options 2, Section 10

The Exchange previously amended

Options 2, Section 10(a)(ii) related to Directed Orders to amend the sentence to replace the words “Exchange's best price” with “better of the internal PBBO or the NBBO.” The Exchange previously conformed the rule text with language throughout the Options 3 trading rules that describe the Exchange's best price with references to the internal PBBO and NBBO. Pursuant to Options 3, Section 5, the System automatically executes eligible orders using the Exchange's displayed best bid and offer (“PBBO”) or the Exchange's non-displayed order book (“internal PBBO”) if there are non-displayed orders on the order book or the best bid and/or offer on the Exchange has been repriced pursuant to Options 3, Section 5(d) or Options 3, Section 4(b)(6) which describes trade-through compliance and locked and crossed markets. At that time, the Exchange inadvertently did not amend Options 2, Section 10(a)(iii) in a similar manner. Options 2, Section 10(a)(iii) describes when the opposite side of the market from the Directed Order is inferior to the internal PBBO or the NBBO. The Exchange should have amended Options 2, Section 10(a)(ii) in a similar manner. At this time, the Exchange proposes to amend the rule text of Options 2, Section 10(a)(iii) to state, “When the Exchange's disseminated price is the NBBO, and the quotation disseminated by the Directed Lead Market Maker, RSQT, or SQT on the opposite side of the market from the Directed Order is inferior to the internal PBBO or the NBBO at the time of receipt of the Directed Order, the Directed Order shall be automatically executed and allocated to those quotations and orders at the NBBO in accordance with Options 3, Section 10(a)(1).”

See

Securities Exchange Act Release No. 100599 (July 25, 2024), 89 FR 61550 (July 31, 2024) (SR-Phlx-2024-26) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 2, Sections 5 and 10 and Options 3, Section 15).

Options 3, Section 11

Block Order Mechanism

The Exchange proposes to adopt several auctions within Options 3, Section 11, which is currently reserved. The Exchange proposes to entitle Option 3, Section 11 “Auction Mechanisms.”

The Exchange proposes adopting a new Block Order Mechanism in Options 3, Section 11(a). Today, Phlx does not have a Block Order Mechanism. The proposed Block Order Mechanism in Options 3, Section 11 would be identical to ISE's Block Order Mechanism at Options 3, Section 11(a).

The proposed mechanism will provide a means for handling “block-sized orders” (

i.e.,

orders for fifty (50) contracts or more), and will be identical to the Block Order Mechanism currently offered by the Exchange's affiliate, ISE. Specifically, proposed Options 3, Section 11(a) will state that the Block Order Mechanism is a process by which a member can obtain liquidity for the execution of block-size orders (“Block Order”). The Block Order Mechanism is for single leg transactions only. As discussed above, Options 3, Section 11 will further define block-size orders as orders for fifty (50) contracts or more. These provisions are consistent with ISE Options 3, Section 11(a).

Proposed subparagraph (a)(1) of Options 3, Section 11 would provide that upon entry of an order into the Block Order Mechanism, a broadcast message would be sent that includes the series, and may include price, size and/

or size, as specified by the member

entering the Block Order, and members would be given an opportunity to enter Responses with the prices and sizes at which they would be willing to trade with the Block Order.

This proposal is identical to ISE's process at Options 3, Section 11(a)(1). The Exchange also proposes to add identical definitions of “broadcast message” and “Response” within this rule. Specifically, for purposes of the Rule, a “broadcast message” will mean an electronic message that is sent by the Exchange to all members, and a “Response” will mean an electronic message that is sent by members in response to a broadcast message. Further, Responses represent non-firm interest that can be canceled or modified at any time prior to execution. Responses are not displayed to any market participants. Also, for purposes of this Rule, the time given to members to enter Responses for any of the below auction mechanisms shall be designated by the Exchange via an Options Trader Alert, but no less than 100 milliseconds and no more than 1 second.

These definitions would apply to any auction in Options 3, Section 11.

The term “member” means a permit holder which has not been terminated in accordance with the By-Laws and these Rules of the Exchange. A member is a natural person and must be a person associated with a member organization. Any references in the rules of the Exchange to the rights or obligations of an associated person or person associated with a member organization also includes a member.

See

Phlx General 1, Section 1(a)(16). Of note, ISE General 1, Section 1(a)(13) defines a “Member” as to mean an organization that has been approved to exercise trading rights associated with Exchange Rights.

The Exchange notes that similar to current ISE functionality, the proposed functionality on Phlx will allow all members, except for the initiating member, to respond to the Block Order Mechanism.

See

proposed Options 3, Section 11.

See also

ISE Options 3, Section 11.

The Exchange is proposing a Facilitation Mechanism, Complex Facilitation Mechanism, Solicited Order Mechanism and Complex Solicited Order Mechanism within Options 3, Section 11 within this proposal.

Proposed subparagraph (a)(2) would provide that at the conclusion of the time given to members entering Responses, either an execution would occur automatically, or the Block Order would be cancelled. Proposed subparagraph (a)(2)(A) to Options 3, Section 11 explains the price at which orders entered into the Block Order Mechanism are executed. Specifically, Responses, orders, and quotes would be executed at a single block execution price that is the price for the Block Order at which the maximum number of contracts can be executed consistent with the member's instruction. Bids (offers) on the Exchange at the time the Block Order is executed that are priced higher (lower) than the block execution price, as well as Responses that are priced higher (lower) than the block execution price, would be executed in full at the block execution price up to the size of the Block Order. This is identical to how ISE's Block Orders are priced at execution pursuant to ISE Options 3, Section 11(a)(2)(A).

Proposed subparagraph (a)(2)(B) describes the proposed auction allocation methodology. At the block execution price, Public Customer Orders and Public Customer Responses will be executed first in price time priority, and then quotes, non-Public Customer Orders, and non-Public Customer Responses will participate in the execution based upon the percentage of the total number of contracts available at the block execution price that is represented by the size of the quote, non-Public Customer Order, or non-Public Customer Response. This is functionally identical to ISE's Block Order Mechanism allocation methodology.

Identical to ISE, the proposed Block Order Mechanism is designed to provide an opportunity for members to receive liquidity for their Block Orders, and will therefore trade at a price that allows the maximum number of contracts of the Block Order to be executed against both Responses entered to trade against the order and unrelated interest on the Exchange's order book.

See

ISE Options 3, Section 11(a)(2)(B). The reference to “Professional” interest in ISE's rule refers to non-Priority Customer interest as compared to Priority Customer interest.

See

ISE Options 1, Section 1(a)(39) which defines a Professional Order as an order that is for the account of a person or entity that is not a Priority Customer.

Example 1

A member enters a Block Order to buy 100 contracts at $1.00

Response A to sell 50 contracts at $0.90

Response B to sell 40 contracts at $0.95

The block execution price would be 90 contracts at $0.95 as this is the price at which the maximum number of contracts could be executed. The Block Order and both Responses would then be executed at this single block execution price. Responses A and B would be executed in full since there is sufficient size to execute both Responses against the Block Order.

If two other members also enter Responses C (a Public Customer) and D (a Firm), to sell at $0.98 for 10 contracts each, the block execution price would be $0.98 as additional contracts could be executed at that price. In that instance, Responses A and B, which are priced better than the block execution price, would be executed in full at $0.98, while Responses C and D, which are priced at the block execution price, would participate in accordance with the allocation methodology described in the proposed rule—

i.e.,

the remaining 10 contracts would go to Response C, which is the Public Customer Response.

The Exchange proposes in subparagraph (a)(3) that if a trading halt is initiated after an order is entered into the Block Order Mechanism, such auction will be automatically terminated without execution. ISE Options 3, Section 11(a)(3) has identical rule text. Lastly, the Exchange proposes to amend Options 3, Section 7(v) to add Block Orders to the list of order types and provide, “A Block Order is an order entered into the Block Order Mechanism as described in Options 3, Section 11(a).” ISE Options 3, Section 7(v) identically defines Block Order as an order type.

The Exchange also proposes to note that at proposed Supplementary .05 to Options 3, Section 11 that orders and Responses may be entered into the Block Order Mechanism and receive executions at penny increments. Orders and quotes in the market that receive the benefit of the block execution price pursuant to Options 3, Section 11 (a)(2)(A) may also receive executions at penny increments. ISE has identical language at Supplementary .05 to Options 3, Section 11.

Facilitation Mechanism

The Exchange proposes to amend Options 3, Section 11(b) and (c) to adopt a new proposed Facilitation Mechanism. Today, Phlx does not offer a Facilitation Mechanism. The proposed Facilitation Mechanism will be substantively identical to ISE's Facilitation Mechanism except that the Facilitation Mechanism will allocate pursuant to Phlx Options 3, Section 10

as explained below.

See supra

note 3.

The proposed Facilitation Mechanism will provide a Phlx member with the ability to enter a block size order and execute the order as principal. A Phlx member is not otherwise permitted to execute an agency order as principal unless the order is first permitted to interact with other interest on the Exchange pursuant to Options 3, Section 22(b).

Proposed Options 3,

Section 11(b) would provide for a Facilitation Mechanism that would permit a Phlx member to execute a transaction wherein the member seeks to facilitate a block-size order it represents as agent (“agency order”), and/or a transaction wherein the member solicited interest to execute against a block-size order it represents as agent (“Facilitation Order”). This mechanism allows members the flexibility to represent a transaction where the member is facilitating only a portion of the order and has solicited interest from other parties for the other portion of the order. Members must be willing to execute the entire size of orders entered into the Facilitation Mechanism.

Currently, Options 3, Section 22(b) provides that member organizations may not execute as principal against orders on the Limit Order book they represent as agent unless: (i) agency orders are first exposed on the Limit Order book for at least 1 second; (ii) the member has been bidding or offering on the Exchange for at least 1 second prior to receiving an agency order that is executable against such order; (iii) the orders are entered into Price Improvement XL or “PIXL” pursuant to Options 3, Section 13; (iv) the orders are entered into the Complex Order Live Auction or “COLA” pursuant to Options 3, Section 14(e); or (v) the orders are entered into the Qualified Contingent

Cross or “QCC” mechanism pursuant to Options 3, Section 12 or Options 8, Section 30(e).

With respect to orders entered into the Facilitation Mechanism, the orders are required to be entered at a price that is (A) equal to or better than the NBBO and the internal PBBO

on the same side of the market as the agency order unless there is a Public Customer order on the BBO or internal PBBO on the same side of the market as the agency order, in which case the order must be entered at an improved price over the Public Customer order; and (B) equal to or better than the ABBO on the opposite side. Orders that do not meet these requirements would not be eligible for the Facilitation Mechanism and would be rejected.

The internal PBBO (also known as the internal BBO) represents the Exchange's non-displayed order book.

See

Options 3, Section 4(b)(7).

See

proposed Options 3, Section 11(b).

Thereafter, once an order is entered into the Facilitation Mechanism, the Exchange will send a facilitation broadcast to crowd participants. The broadcast message is anonymous and informs participants of the proposed transaction. The broadcast message would include the series, price and size of the agency order, and whether it is to buy or sell. Members would be given an opportunity to enter Responses with the prices and sizes at which they want to participate in the facilitation of the order.

The recipients of the broadcast would have a designated amount of time, set by the Exchange,

to respond.

Responses may be priced at the price of the order to be facilitated or at a better price and will only be considered up to the size of the order to be facilitated. Responses must be entered at a price that is equal to or better than the better of the internal PBBO or the NBBO: (1) on the same side of the market at the start of the Facilitation Mechanism; and (2) on the opposite side of the market at the time the Response is received.

See

proposed Options 3, Section 11(b)(2).

See

proposed Options 3, Section 11.

The Exchange proposes to set the Facilitation Mechanism broadcast message timer to 100 milliseconds.

See

proposed Options 3, Section 11(b)(3).

Example 2

Assume the NBBO and the Phlx PBBO is $1.00 bid and $2.00 offered and the CBOE is the next best exchange quote with $0.75 bid and $2.25 offered. An agency order to buy 50 contracts at $2.05 is entered into the Facilitation Mechanism by the initiating member with a contra-side sell order.

If no responses are received, the agency order executes with the resting 50 lot quote @ $2.00. In this instance, the agency order is able to be crossed with the contra side Phlx PBBO because in execution, the resting 50 lot quote @ $2.00 is able to provide price improvement to the agency order.

By utilizing the better of the internal PBBO or the NBBO at the start of the auction, the Exchange believes that better priced Responses would be permitted to trade with the order to be facilitated. This proposal would permit a Response to these auctions to be entered at a price that is equal to or better than the better of the internal PBBO or the NBBO on the same side of the market at the start of the auction and on the opposite side of the market at the time the Response is received, thereby preventing potential auction manipulation which can occur when an order/quote is entered at a price that improves the price of the order to be facilitated. Other Responses to that auction may be entered at a price that improves the price of the order to be facilitated, but are inferior to such other quote/order Responses which improved upon the internal PBBO or NBBO. Utilizing the price of the market at the start of the auction, for the same side check, would prevent an order or quote from potentially manipulating the final auction price by changing the internal PBBO/NBBO while not fully satisfying the agency order, thus preventing Responses from being entered at a price that improves the stop price of the auction, but remains inferior to the price of such initial order or quote. The entry checks differ for the same and opposite sides of the market because manipulation may not occur on the opposite side of the Response because only interest on the same side of the Response will be eligible to trade with the auctioned order. The proposed amendments would allow orders to be facilitated to potentially trade at improved prices.

Example 3

Assume the NBBO is $1.10 bid and $1.35 offered while the internal PBBO is $1.15 bid and $1.30 offered. An agency order to sell 100 contracts at $1.18 is entered into the Facilitation Mechanism by the initiating member.

If Order 1 is entered to buy 1 contract @$1.25 and then Auction Response 1 is entered to buy 100 contracts at $1.20. With the entry check modification, Auction Response 1 is accepted based on the market at the start of the auction of $1.15 bid and $1.30 offered.

Auction would conclude and partially trade with Order 1 at $1.25 and then trade the remainder of the agency order at a price of $1.20 based off of the acceptance of Auction Response 1.

At the end of the period given for the entry of Responses, the agency order would be automatically executed.

With respect to the allocation of the Facilitation Order, Public Customer Orders and Public Customer Responses to buy (sell) at the time the Facilitation Order is executed that are priced higher (lower) than the facilitation price will be executed at the facilitation price, unless there is sufficient size to execute the entire Facilitation Order at a better price. The Exchange believes that this proposal will both protect Public Customer limit orders on the order book and provide Public Customers with the benefit of price improvement. Thereafter, non-Public Customer Orders and non-Public Customer Responses to buy (sell) and Market Maker quotes at the time the Facilitation Order is executed that are priced higher (lower) than the facilitation price will be executed at their stated price, thereby providing the order being facilitated a better price for the number of contracts associated with such higher bids (lower offers). The Exchange believes that the proposal is consistent with the public interest, and that it promotes just and equitable principles of trade by ensuring that Market Makers will be able to compete in a fair and equitable manner, based on the competitiveness of their quotes, for that portion of an order remaining after Public Customer interest and the member's facilitation allocation. The Facilitation Order will be cancelled at the end of the exposure period if an execution would take place at a price that is inferior to the Exchange best bid (offer), or if there is a Public Customer Order on the same side at the same price as the agency order unless the Facilitation Order can execute at a price that is better than the same side Public Customer Order.

The Exchange's

allocation methodology ensures that executions in Facilitation Auctions comply with the general prohibition on trade-throughs in Options 5, Section 2(a).

See

proposed Options 3, Section 11(b)(4).

See

proposed Options 3, Section 11(b)(4)(A).

The facilitating member will be allocated up to forty percent (40%) (or such lower percentage requested by the member) of the original size of the agency order after better-priced Responses, orders and quotes, as well as Public Customer Orders and Public Customer Responses at the facilitation price, are executed in full at such price point. Thereafter, quotes, non-Public Customer Orders, and non-Public Customer Responses will execute pursuant to the priority allocations in Options 3, Section 10(a)(1)(E) and (F).

This allocation methodology is the same allocation methodology utilized for order book allocation at Options 3, Section 10.

Phlx will utilize its allocation methodology at Options 3, Section 10 whereas ISE's Facilitation Mechanism utilizes ISE's allocation methodology at ISE Options 3, Section 10. Specifically, Phlx's allocation methodology differs from ISE's allocation methodology in that Phlx will allocate to Market Makers ahead of all other non-Public Customer interest whereas ISE does not have a separate market maker allocation. This is consistent with the Exchange's standard allocation methodology in its PIXL auction. Phlx believes it is consistent with the Act to retain its allocation model in these auctions in the same way that it utilizes its allocation model in its PIXL auction in Phlx Options 3, Section 13 and ISE utilizes its allocation model in its PIM auction in ISE Options 3, Section 13. Phlx's allocation model is consistent with the Act as it maintains the priority of orders and protects Public Customer orders by allocating them prior to other interest.

See supra

note 3.

Id.

The Exchange offers an auto-match functionality, which provides an enhanced price improvement opportunity for the agency order by permitting the contra-side order to further participate in the cross by auto-matching the price and size of competing interest providing price improvement from other market participants. Proposed Options 3, Section 11(b)(4)(C) notes that upon entry of an order into the Facilitation Mechanism, the facilitating member can elect to automatically match the price and size of orders, quotes and Responses received during the exposure period up to a specified limit price or without specifying a limit price. In this case, if the facilitating member auto-matches, it will be allocated the aggregate size of all competing quotes, orders, and Responses at each price point, or at each price point up to the specified limit price if a limit is specified, until a price point is reached where the balance of the order can be fully executed. At such price point, the facilitating member shall be allocated up to forty percent (40%) (or such lower percentage requested by the member) of the original size of the agency order, but only after Public Customer Orders and Public Customer Responses at such price point. Thereafter, non-Public Customer Orders, non-Public Customer Responses and quotes will execute pursuant to the priority allocations in Options 3, Section 10(a)(1)(E) and (F),

which is the same allocation methodology utilized for transactions in the Exchange's order book at Options 3, Section 10. The Exchange notes that an election to automatically match better prices cannot be cancelled or altered during the exposure period.

See supra

note 3.

See

proposed Options 3, Section 11(b)(4)(C).

Example 4

Assume the NBBO is $10.60 bid and $10.70 offered. An agency order to sell 50 contracts at $10.65 is entered into the Facilitation Mechanism by the initiating member with a contra-side buy order that has an auto-match limit of $10.70:

If one Response is received for 10 contracts to buy at $10.70, the agency order will receive 20 contracts at $10.70 (10 against the Response and 10 against the contra-side order) and 30 contracts at $10.65 (against the contra-side order).

If there is one Response for 10 contracts to buy at $10.70 and two Responses each for 5 contracts to buy at $10.65, the agency order will receive 20 contracts at $10.70 (10 against the Response and 10 against the contra-side order), and then the balance of the 30 contracts will be allocated between the contra-side order and the two Responses at $10.65 as follows: 20 contracts would be allocated to the contra-side order (40% of the initial order); and 5 contracts would be allocated to each of the responding participants.

The proposed auto-match feature benefits the agency order because it sells additional contracts at the better price. When the initiating member selects the auto-match feature prior to the start of an auction, the available liquidity at improved prices is increased and competitive final pricing is out of the initiating member's control.

The Exchange proposes to state at proposed Options 3, Section 11(b)(4)(D) that under no circumstances will the facilitating member receive an allocation percentage, at the final price point, of more than 40% of the original size of the Facilitation Order with one or multiple competing quote(s), order(s), or Response(s), except for rounding, when competing quotes, orders, or Responses have contracts available for execution.

Finally, the Exchange notes that if a trading halt is initiated after an order is entered into the Facilitation Mechanism, such auction will be automatically terminated without execution.

See

proposed Options 3, Section 11(b)(5).

The Exchange proposes to state in proposed Supplementary Material .01 to Options 3, Section 11 that it would be a violation of a member's duty of best execution to its customer if it were to cancel a Facilitation Order to avoid execution of the order at a better price. A member continues to have its best execution obligations even when transacting an order in the Facilitation Mechanism and therefore must seek the best price for its customer. To this end, the Exchange makes clear that if a member were to cancel a Facilitation Order when there was a superior price available on the Exchange and subsequently re-enter the Facilitation Order at the same facilitation price after the better price was no longer available without attempting to obtain that better price for its customer, there would be a presumption that the member did so to avoid execution of its customer order in whole or in part by other brokers at the better price. Additionally, any solicited contra orders entered by members into the Facilitation Mechanism to trade against agency orders may not be for the account of a Phlx Market Maker that is assigned to the options class.

The Exchange proposes to note in Options 3, Section 7(w) that a facilitation order is a paired order entered into the Facilitation Mechanism as described in Options 3, Section 11(b).

Complex Facilitation Mechanism

The Exchange proposes a new Complex Facilitation Mechanism which will be substantively identical to ISE's Complex Facilitation Mechanism except that the Complex Facilitation Mechanism will allocate pursuant to Phlx Options 3, Section 10

as explained below.

See supra

note 3.

The Complex Facilitation Mechanism is a process by which a member can execute a transaction wherein the member seeks to facilitate a block-size Complex Order it represents as agent, and/or a transaction wherein the member solicited interest to execute against a block-size Complex Order it

represents as agent. Members must be willing to execute the entire size of Complex Orders entered into the Complex Facilitation Mechanism.

Pursuant to proposed Options 3, Section 11(c), members may use the Facilitation Mechanism in proposed sub-paragraph (b) to Options 3, Section 11 to execute block-size Complex Orders at a net price. The Exchange requires each options leg of a Complex Order entered into the Complex Facilitation Mechanism to meet the minimum contract size requirement.

See

proposed Options 3, Section 11(c).

Proposed Options 3, Section 11(c) describes certain criteria for transacting Complex Facilitation Orders. Pursuant to proposed Options 3, Section 11(c)(1), Complex Orders entered into the Complex Facilitation Mechanism must be priced within the parameters described below. Complex Orders that do not meet these requirements are not eligible for the Complex Facilitation Mechanism and will be rejected. Pursuant to proposed Options 3, Section 11(c)(2), Complex Options Orders must be entered into the Complex Facilitation Mechanism at a price that is (A) equal to or better than the best bid or offer on the Complex Order Book on the same side of the market as the agency order; and (B) equal to or better than the best net price achievable from the best Phlx bids and offers for the individual legs on the same side of the market as the agency order; provided that, if there is a Public Customer order on the best bid or offer for any leg, the order must be entered at an improved price consistent with Options 3, Section 14(c)(2).

SR-Phlx-2025-17 proposed a new Options 3, Section 14(c)(2) that provides, Complex strategies will not be executed at prices inferior to the best net price achievable from the best Exchange bids and offers for the individual legs. Notwithstanding the provisions of Options 3, Section 10: (i) a Complex Options Strategies may be executed at a total credit or debit price with one other member organization without giving priority to bids or offers established on the Exchange that are no better than the bids or offers in the individual options series comprising such total credit or debit; provided, however, that if any of the bids or offers established on the Exchange consist of a Public Customer Order, the price of at least one leg of the complex strategy must trade at a price that is better than the corresponding bid or offer on the Exchange by at least one minimum trading increment for the series as defined in Options 3, Section 3. (ii) The option leg of a Stock-Option Strategy has priority over bids and offers for the individual options series established on the Exchange by Professional Orders and market maker quotes that are no better than the price of the options leg, but not over such bids and offers established by Public Customer Orders. (iii) The options legs of a Stock-Complex Strategy are executed in accordance with subparagraph (c)(2)(i).

See

Securities Exchange Act Release No. 102862 (April 15, 2025), 90 FR 16731 (April 21, 2025) (SR-Phlx-2025-17) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Phlx's Complex Order Functionality). SR-Phlx-2025-17 proposed the same operative date as this rule change as they are both part of the same technology migration.

With respect to the Complex Facilitation Mechanism, the entry check is different for Complex Options Orders and Complex Orders that have a stock component (

i.e.,

Stock-Option Orders and Stock-Complex Orders) since Stock-Option Orders and Stock-Complex Orders entered in the Complex Facilitation Mechanism are not eligible to trade with bids and offers for the individual legs. With respect to Stock-Option Orders and Stock-Complex Orders, these orders must be entered into the Complex Facilitation Mechanism at a price that is (A) equal to or better than the best bid or offer on the Complex Order Book on the same side of the market as the agency order; and (B) equal to or better than the best net price achievable from the best Phlx bids and offers for the individual legs on both sides of the market; provided that, if there is a Public Customer order on the best bid or offer for any leg, the order must be entered at an improved price consistent with Options 3, Section 14(c)(2).

See

proposed Options 3, Section 11(c)(3).

See supra

note 31.

A Complex Order entered into the Complex Facilitation Mechanism will be rejected if any component of the Complex Order has not opened for trading, or if there is a trading halt in any series underlying the Complex Order. Identical to the single-leg Facilitation Mechanism at proposed Options 3, Section 11(b)(5), if a trading halt is initiated after the order is entered into the Complex Facilitation Mechanism, such auction will be automatically terminated without execution.

See

proposed Options 3, Section 11(c)(4).

Identical to the single-leg Facilitation Mechanism at proposed Options 3, Section 11(b)(4)(C), upon the entry of a Complex Order into the Complex Facilitation Mechanism, a broadcast message that includes the net price, side and size of the Agency Complex Order will be sent and members will be given an opportunity to enter Responses with the net prices and sizes at which they want to participate in the facilitation of the Agency Complex Order.

See

proposed Options 3, Section 11(c)(5). The time given to members to enter Responses shall be designated by the Exchange via Options Trader Alert, but will be no less than 100 milliseconds and no more than 1 second.

Responses are only executable against the Complex Order with respect to which they are entered, and will only be considered up to the size of the Complex Order to be facilitated. Responses must be entered in the increments provided in Options 3, Section 14(c)(1)

at the facilitation price or at a price that is at least one cent better for the agency order.

Responses in the Complex Facilitation Mechanism submitted by members shall not be visible to other auction participants during the exposure period and can be modified or deleted before the exposure period has ended. At the end of the period given for the entry of Responses, the Facilitation Order will be automatically executed.

SR-Phlx-2025-17 proposed a new Options 3, Section 14(c)(1) which describes minimum increments. Specifically, SR-Phlx-2025-17 proposed the following text at Options 3, Section 14(c)(1), Bids and offers for Complex Options Strategies may be expressed in one cent ($0.01) increments, and the options leg of Complex Options Strategies may be executed in one cent ($0.01) increments, regardless of the minimum increments otherwise applicable to the individual options legs of the order. Bids and offers for Stock-Option Strategies or Stock-Complex Strategies may be expressed in any decimal price determined by the Exchange, and the stock leg of a Stock-Option Strategy or Stock-Complex Strategy may be executed in any decimal price permitted in the equity market. The options leg of a Stock-Option Strategy or Stock-Complex Strategy may be executed in one cent ($0.01) increments, regardless of the minimum increments otherwise applicable to the individual options legs of the order.

See

Securities Exchange Act Release No. 102862 (April 15, 2025), 90 FR 16731 (April 21, 2025) (SR-Phlx-2025-17) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Phlx's Complex Order Functionality). SR-Phlx-2025-17 proposed the same operative date as this proposal as they are both part of the same technology migration.

See

proposed Options 3, Section 11(c)(6).

See

proposed Options 3, Section 11(c)(7).

Identical to the single-leg Facilitation Mechanism at proposed Options 3, Section 11(b)(4)(A), unless there is sufficient size to execute the entire Facilitation Order at a better net price, Public Customer Complex Orders and Public Customer Responses to buy (sell) at the time the Facilitation Order is executed that are priced higher (lower) than the facilitation price will be executed at the facilitation price. Non-Public Customer Complex Orders and non-Public Customer Responses to buy (sell) at the time the Facilitation Order is executed that are priced higher (lower) than the facilitation price will be executed at their stated price, thereby providing the Complex Order being facilitated a better price for the number of contracts associated with such higher bids (lower offers).

See

proposed Options 3, Section 11(c)(7)(A).

Also, identical to the single-leg Facilitation Mechanism at proposed Options 3, Section 11(b)(4)(B), the facilitating member will be allocated up to forty percent (40%) (or such lower percentage requested by the member) of the original size of the agency order, but

only after better-priced Responses, Complex Orders, as well as Public Customer Complex Orders as well as Public Customer Complex Orders at the facilitation price, are executed in full. Thereafter, non-Public Customer Complex Orders and non-Public Customer Responses will execute pursuant to the priority allocations in Options 3, Section 10(a)(1)(E) and (F).

An election to automatically match better prices cannot be cancelled or altered during the exposure period.

See supra

note 3.

The Complex Facilitation Mechanism will also offer the opportunity for auto-match, so that upon entry of a Complex Order into the Complex Facilitation Mechanism, the facilitating member can elect to automatically match the net price and size of Complex Orders and Responses received during the exposure period up to a specified limit price or without specifying a limit price. This election will also automatically match the net price available from the Phlx best bids and offers on the individual legs for the full size of the order; provided that with notice to members the Exchange may determine whether to offer this option only for Complex Options Orders, Stock-Option Orders, and/or Stock Complex Orders. If a member elects to auto-match, the facilitating member will be allocated the aggregate size of all competing Complex Orders and Responses at each price point, or at each price point up to the specified limit price if a limit is specified, until a price point is reached where the balance of the order can be fully executed. At such price point, the facilitating member will be allocated up to forty percent (40%) (or such lower percentage requested by the member) of the original size of the agency order, but only after Public Customer Orders and Public Customer Responses at such price point. Thereafter non-Public Customer Complex Orders and non-Public Customer Responses will execute pursuant to the priority allocations in Options 3, Section 10(a)(1)(E) and (F).

An election to automatically match better prices cannot be cancelled or altered during the exposure period.

See supra

note 3.

See

proposed Options 3, Section 11(c)(7)(C).

With respect to bids and offers for the individual legs of a Complex Order entered into the Complex Facilitation Mechanism, the priority rules applicable to the execution of Complex Orders that are entered into the Complex Order Book in Options 3, Section 14(c)(2)

would apply and may prevent the execution of a Complex Order entered into the Facilitation Mechanism, in which case the transaction will be cancelled. If an improved net price for the Complex Order being executed can be achieved from Complex Orders, Responses and, for Complex Options Orders, the Phlx best bids and offers on the individual legs, the agency order will be executed against such interest.

See supra

note 31.

See

proposed Options 3, Section 11(c)(7)(D).

Finally, as is the case for the Facilitation Mechanism in proposed Options 3, Section 11(b)(4)(D), under no circumstances will the facilitating member receive an allocation percentage, at the final price point, of more than 40% of the original size of the Complex Facilitation Order with one or multiple competing Complex Order(s) or Response(s), except for rounding, when competing Complex Orders or Responses have contracts available for execution.

See

proposed Options 3, Section 11(c)(7)(E).

The following examples illustrate how complex orders are transacted in the Exchange's crossing mechanisms and their interaction with individual bids and offers (while the examples below are for Complex Orders entered into the Facilitation Mechanism, these orders would interact similarly with individual bids and offers when entered into the Solicited Order Mechanism and the PIXL):

Example 5

Suppose the following market in option class A:

Phlx BBO: 10 @1.00 × 10 @1.05

Suppose further the following market in option class B:

Phlx BBO: 10 @2.00 × 10 @2.05

A complex order is entered into the Complex Facilitation Mechanism in the complex order book for a strategy buying 1 option class A and buying 1 option class B:

Agency Complex Order: Buy 50 @3.05

Contra Side Complex Order: Sell 50 @3.05

A broadcast message is sent announcing the start of the auction. During the exposure period, the following orders and quotes are received:

Public Customer 1 Complex Order: Sell 5 @3.05

Non-Public Customer 1 Complex Response: Sell 50 @3.05

Non-Public Customer 2 Complex Response: Sell 50 @3.05

At the end of the exposure period, the following orders/Responses trade with the Complex agency order:

Public Customer 1 Complex Order: 5 @3.05

Contra Side Complex Order: 20 @3.05 (40% of 50)

Non-Public Customer 1 Complex Response: 13 @3.05 (Pro-Rata)

Non-Public Customer 2 Complex Response: 12 @3.05 (Pro-Rata)

Example 6

Suppose the following market in option class A:

Phlx BBO: 10 @1.00 × 10 @1.05

Suppose further the following market in option class B:

Phlx BBO: 10 @2.00 × 10 @2.05.

A complex order is entered into the Complex Facilitation Mechanism in the complex order book for a strategy buying 1 option class A and buying 1 option class B:

Agency Complex Order: Buy 50 @3.05

Contra Side Complex Order: Sell 50 @3.05

A broadcast message is sent announcing the start of the auction. During the exposure period, the following orders and quotes are received:

Public Customer 1 Complex Order: Sell 5 @3.05

Non-Public Customer 1 Complex Response: Sell 50 @3.05

Non-Public Customer 2 Complex Response: Sell 50 @3.05

Public Customer 2 Regular Order: Sell 5 Option Class A @1.02

Public Customer 3 Regular Order: Sell 5 Option Class B @2.03

At the end of the exposure period, the Complex Facilitation transaction is canceled since a trade at 3.05 with counter side orders/Responses will violate the priority rules

for Public Customer 2 and Public Customer 3 Regular Orders.

See

proposed Options 3, Section 11(c)(2).

In Example number 6, Public Customer orders 2 and 3 do not execute against the Agency Order because the Complex Order's Responses and the Public Customer orders for the individual legs do not provide an improved next price for the Complex agency order.

See

proposed Option 3, Section 11(c)(7)(D).

Example 7

Suppose the following market in option class A:

Phlx BBO: 10 @1.00 × 10 @1.05

Suppose further the following market in option class B:

Phlx BBO: 10 @2.00 × 10 @2.05.

A complex order is entered into the Complex Facilitation Mechanism in the complex order book for a strategy buying 1 option class A and buying 1 option class B:

Agency Complex Order: Buy 50 @3.05

Contra Side Complex Order: Sell 50 @3.05

A broadcast message is sent announcing the start of the auction. During the exposure period, the following orders and quotes are received:

Public Customer 1 Complex Order: Sell 5 @3.05

Non-Public Customer 1 Complex Response: Sell 50 @3.05

Non-Public Customer 2 Complex Response: Sell 50 @3.05

Non-Public Customer 3 Regular Order: Sell 40 Option Class A @1.02

Non-Public Customer 4 Regular Order: Sell 40 Option Class 5 @2.02

Non-Public Customer 5 Complex Response: Sell 10 @3.03

At the end of the exposure period, the following orders/Responses trade with the Complex agency order:

Non-Public Customer 5 Complex Response: Sell 10 @3.03

Non-Public Customer 3 Regular Order: Sell 40 Option Class A @1.02

Non-Public Customer 4 Regular Order: Sell 40 Option Class 5 @2.02

In the above example, the Response and bids and offers on the individual legs together with the Non-Public Customer Complex Order Response to sell @3.03 can provide price improvement for the full size of the Complex Agency Order, hence the Complex agency order trades at improved price(s).

See

proposed Options 3, Section 11(c)(7)(D).

The Exchange proposes to note in Options 3, Section 14(b)(16), that a Complex Facilitation Order is an order entered into the Complex Facilitation Mechanism as described in Options 3, Section 11(c).

The Exchange proposed amendments to Options 3, Section 14 in SR-Phlx-2025-17.

See

Securities Exchange Act Release No. 102862 (April 15, 2025), 90 FR 16731 (April 21, 2025) (SR-Phlx-2025-17) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Phlx's Complex Order Functionality). SR-Phlx-2025-17 proposed the same operative date as this proposal as they are both part of the same technology migration.

Solicited Order Mechanism

The Exchange proposes to amend Options 3, Section 11(d) and (e) to adopt a new proposed Solicited Order Mechanism or “SOM”. Today, Phlx does not offer a SOM. The proposed SOM will be substantively identical to ISE's SOM except that the SOM will allocate pursuant to Phlx Options 3, Section 10

as explained below.

See supra

note 3.

The SOM is a process by which a member can attempt to execute orders of 500 or more contracts it represents as agent (the “Agency Order”) against contra orders that it solicited. Each order entered into the SOM shall be designated as all-or-none.

The Exchange proposes to establish a new SOM at proposed Options 3, Section 11(d).

See

proposed Options 3, Section 11(d).

The Exchange would require that orders be entered into the SOM at a price that is equal to or better than the NBBO and the internal PBBO on both sides of the market; provided that, if there is a Public Customer order on the BBO or internal PBBO, the order must be entered at an improved price over the Public Customer order. Orders that do not meet these requirements are not eligible for the SOM and will be rejected.

The proposed rule ensures that the SOM complies with the general prohibition on trade-throughs in Options 5, Section 2(a). Additionally, with respect to a Public Customer order, the requirement that the order must be entered at an improved price over the Public Customer order ensures price improvement, provided there is a Priority Customer order on the BBO or internal PBBO.

See

proposed Options 3, Section 11(d)(1).

Once the two-sided order is entered into the SOM at a proposed execution price, a broadcast message that includes the series, price and size of the Agency Order, and whether it is to buy or sell, will be sent and members will be given an opportunity to enter Responses with the prices and sizes at which they would be willing to participate in the execution of the Agency Order.

Responses must be entered at a price that is equal to or better than the better of the internal PBBO or the NBBO: (1) on the same side of the market at the start of the auction; and (2) on the opposite side of the market at the time the Response is received.

These entry checks would prevent potential auction manipulation which can occur when an order/quote is entered at a price that improves the price of the Agency Order but does not have enough size to satisfy the Agency Order. By utilizing the better of the internal PBBO or the NBBO at the start of the auction, the Exchange believes that better priced Responses would be permitted to trade with the Agency Order. Other Responses to that auction may be entered at a price that improves the price of Agency Order, but is inferior to such other quote/order Responses which improved upon the internal PBBO or NBBO. Utilizing the price of the market at the start of the auction, for the same side check, would prevent an order or quote from potentially manipulating the final auction price by changing the internal PBBO/NBBO while not fully satisfying the Agency Order, thus preventing Responses from being entered at a price that improves the stop price of the auction, but remains inferior to the price of such initial order or quote. The entry checks differ for the same and opposite sides of the market because manipulation may not occur on the opposite side of the Response because only interest on the same side of the Response will be eligible to trade with the auctioned order. The proposed amendments would allow Agency Orders to potentially trade at improved prices. The proposed rule is intended to prevent potential auction manipulation which can occur when an order/quote is entered at a price that improves the price of the order to be solicited.

At the end of the period given members to enter Responses, the Agency Order will be automatically executed in full or cancelled.

See

proposed Options 3, Section 11(d)(2). The time given to members to enter Responses shall be designated by the Exchange via Options Trader Alert, but will be no less than 100 milliseconds and no more than 1 second.

See

proposed Options 3, Section 11(d)(2). ISE added an identical sentence to ISE Options 3, Section 11(d)(2).

See supra

Example 2, which applies to orders entered into the Solicited Order Mechanism as well.

See

proposed Options 3, Section 11(d)(3). The time given to members to enter Responses shall be designated by the Exchange via Options Trader Alert, but will be no less than 100 milliseconds and no more than 1 second.

If at the time of execution there is insufficient size to execute the entire Agency Order at an improved price (or prices), the Agency Order will be executed against the solicited order at the proposed execution price so long as, at the time of execution: (i) the execution price is equal to or better than the best bid or offer on Phlx, and (ii) there are no Public Customer Orders or Public Customer Responses on the Exchange that are priced equal to the proposed execution price. The execution would comply with the general prohibition on trade-throughs in Options 5, Section 2(a). If there are Public Customer Orders or Public Customer Responses on Phlx on the opposite side of the Agency Order at the proposed execution price and there is sufficient size to execute the entire size of the Agency Order, the Agency Order would be executed against the bid or offer, and the solicited order will be cancelled.

The aggregate size of all orders, quotes and Responses at the bid or offer will be used to determine whether the entire Agency Order can be executed. Both the solicited order and Agency Order would be cancelled if an execution would take place at a price: (1) that is inferior to the best bid or offer on the Exchange; (2) if there is a Public Customer Order or Public Customer Response on the Exchange at the proposed execution price but there is insufficient size on Phlx to execute the entire Agency Order; (3) if there is a Public Customer Order on the same side Exchange best bid (offer) at the same price as the solicitation price unless the Solicited Order can execute at a price that is better than the same side Public Customer Order.

See

proposed Options 3, Section 11(d)(3)(A).

However, if at the time of execution there is sufficient size to execute the entire Agency Order at an improved price (or prices), the Agency Order will

be executed at the improved price(s), provided the execution price is equal to or better than the best bid or offer on Phlx, and the solicited order will be cancelled. The aggregate size of all orders, quotes and Responses at each price will be used to determine whether the entire agency order can be executed at an improved price (or prices).

See

proposed Options 3, Section 11(d)(3)(B).

The Exchange notes that when executing the Agency Order against the bid or offer in accordance with subparagraph (A) of Options 3, Section 11(d)(3), or at an improved price in accordance with subparagraph (B) of Options 3, Section 11(d)(3), Public Customer Orders and Public Customer Responses will be executed first. Thereafter, non-Public Customer Orders, non-Public Customer Responses, and quotes will execute pursuant to the priority allocations in Options 3, Section 10(a)(1)(E) and (F),

as is the case with transactions on the order book at Options 3, Section 10.

This allocation methodology is the same allocation methodology utilized for order book allocation at Options 3, Section 10.

Phlx will utilize its allocation methodology whereas ISE's SOM utilizes ISE's allocation methodology in ISE Options 3, Section 10. Phlx's allocation methodology differs from ISE's allocation methodology in that Phlx will allocate to Market Makers ahead of all other non-Public Customer interest whereas ISE does not have an additional market maker allocation. This is consistent with the Exchange's standard allocation methodology in its PIXL auction. Phlx believes it is consistent with the Act to retain its allocation model in these auctions in the same way that it utilizes its allocation model in its PIXL auction in Phlx Options 3, Section 13 and ISE utilizes its allocation model in its PIM auction in ISE Options 3, Section 13. Phlx's allocation model is consistent with the Act as it maintains the priority of orders and protects Public Customer orders by allocating them prior to other interest.

See supra

note 3.

See

proposed Options 3, Section 11(d)(3)(C).

Id.

Identical to all other auctions on Phlx, if a trading halt is initiated after an order is entered into the SOM, such auction will be automatically terminated without execution.

Prior to entering Agency Orders into the SOM on behalf of a customer, members must deliver to the customer a written notification informing the customer that its order may be executed using the Phlx's SOM. Such written notification must disclose the terms and conditions contained in this rule and must be in a form approved by the Exchange.

See

proposed Options 3, Section 11(d)(4).

See

proposed Options 3, Section 11(d)(5).

The Exchange proposes adding text at proposed Supplementary Material .03 to Options 3, Section 11 to make clear that the SOM provides a facility for members that locate liquidity for their customer orders, and that members may not use the SOM to circumvent Exchange rules limiting principal transactions as provided for in Options 3, Section 22(b).

This would include a member entering contra-orders that are solicited from affiliated broker-dealers or broker-dealers with which the member has an arrangement that allows the member to realize similar economic benefits from the solicited transaction as it would achieve by executing the order in whole or in part as principal. Finally, any solicited contra orders entered by members to trade against Agency Orders may not be for the account of a Phlx Market Maker that is assigned to the options class.

The Exchange proposes to note in Options 3, Section 7(x) that a SOM order is a paired order entered into the SOM as described in Options 3, Section 11(d).

Options 3, Section 7 was revised by SR-Phlx-2024-71.

See

Complex Solicited Order Mechanism

The Exchange proposes to offer a Complex SOM that is substantially identical to ISE's Complex SOM except that Phlx will allocate the Complex SOM pursuant to Options 3, Section 10

as explained below.

See supra

note 3.

The Complex SOM is a process by which a member can attempt to execute Complex Orders it represents as agent (the “Agency Complex Order”) against contra orders that it solicited according to subparagraph (d), the SOM, of Options 3, Section 11. Each Complex Order entered into the SOM shall be designated as all-or-none, and each options leg must meet the minimum contract size requirement contained in subparagraph (d) of the SOM.

See

proposed Options 3, Section 11(e).

Proposed Options 3, Section 11(e)(1) describes certain criteria for transacting Complex Solicited Orders. Proposed Options 3, Section 11(e)(1) provides that, Complex Orders must be entered into the Complex SOM at a price that is (A) equal to or better than the best bid or offer on the Complex Order Book on both sides of the market; and (B) equal to or better than the best net price achievable from the best Phlx bids and offers for the individual legs on both sides of the market; provided that, if there is a Public Customer order on the best bid or offer for any leg, the order must be entered at an improved price consistent with Options 3, Section 14(c)(2).

Complex Orders that do not meet these requirements are not eligible for the Complex SOM and will be rejected.

See supra

note 31.

See

proposed Options 3, Section 11(e)(1).

Proposed Options 3, Section 11(e)(2) provides that a Complex Order entered into the Complex SOM will be rejected if any component of the Complex Order has not opened for trading, or if there is a trading halt in any series underlying the Complex Order. If a trading halt is initiated after the order is entered into the Complex SOM, such auction will be automatically terminated without execution. This is identical to the proposed treatment of halts in a single-leg SOM at Options 3, Section 11(d)(4).

Identical to a single-leg SOM at proposed Options 3, Section 11(d)(2), upon entry of both orders into the Complex SOM at a proposed execution net price, a broadcast message that includes the net price, side and size of the Agency Complex Order will be sent and members will be given an opportunity to enter Responses with the net prices and sizes at which they would be willing to participate in the execution of the Agency Complex Order.

The time given to members to enter Responses shall be designated by the Exchange via Options Trader Alert, but will be no less than 100 milliseconds and no more than 1 second, which is identical to the proposed single-leg SOM. Responses are only executable against the Complex Order with respect to which they are entered, and will only be considered up to the size of the Agency Complex Order identical to the proposed single-leg SOM. Responses must be entered in the

increments provided in Options 3, Section 14(c)(1)

at the proposed execution net price or at a price that is at least one cent better for the Agency Order.

See

proposed Options 3, Section 11(d)(3).

See supra

note 35.

See

proposed Options 3, Section 11(d)(3).

Responses submitted by members shall not be visible to other auction participants during the exposure period and can be modified or deleted before the exposure period has ended. At the end of the period given for the entry of Responses, the Agency Complex Order will be automatically executed in full, as explained further below, or cancelled.

See

proposed Options 3, Section 11(d)(4).

First, if at the time of execution there is insufficient size to execute the entire Agency Complex Order at an improved net price(s) pursuant to paragraph (e)(4)(C) as discussed below, the Agency Complex Order will be executed against the solicited Complex Order at the proposed execution net price so long as, at the time of execution: (i) the execution net price is equal to or better than the best net price achievable from the best Phlx bids and offers for the individual legs, (ii) the Complex Order can be executed in accordance with Options 3, Section 14(c)(2)

with respect to the individual legs, (iii) the execution net price is equal to or better than the best bid or offer on the Complex Order Book, and (iv) there are no Public Customer Complex Orders or Responses that are priced equal to or better than the proposed execution price.

See supra

note 31.

See

proposed Options 3, Section 11(d)(4)(A).

Second, if there are Public Customer Complex Orders or Responses on the opposite side of the Agency Complex Order at the proposed execution net price and there is sufficient size to execute the entire size of the Agency Complex Order, the Agency Complex Order will be executed against such interest, and the solicited Complex Order will be cancelled, provided that: (i) the execution net price is equal to or better than the best net price achievable from the best Phlx bids and offers for the individual legs, and (ii) the Complex Order can be executed in accordance with Options 3, Section 14(c)(2)

with respect to the individual legs. The aggregate size of all Complex Orders, Responses and, for Complex Options Orders, the aggregate size available from the best bids and offers for the individual legs, will be used to determine whether the entire Agency Complex Order can be executed as is the case for the proposed SOM at Options 3, Section 11(d)(3)(A).

See supra

note 31.

See

proposed Options 3, Section 11(d)(4)(B).

Third, if at the time of execution there is sufficient size to execute the entire Agency Complex Order at an improved net price(s), the Agency Complex Order will be executed at the improved net price(s), and the solicited Complex Order will be cancelled, provided that: (i) the execution net price is equal to or better than the best net price achievable from the best Phlx bids and offers for the individual legs, and (ii) the Complex Order can be executed in accordance with Options 3, Section 14(c)(2)

with respect to the individual legs. The aggregate size of all Complex Orders, Responses, and the aggregate size available from the best bids and offers for the individual legs for a Complex Options Order, will be used to determine whether the entire Agency Complex Order can be executed as is the case for the proposed SOM at Options 3, Section 11(d)(3)(A).

Id.

See

proposed Options 3, Section 11(d)(4)(C).

Fourth, as is the case for the SOM at Options 3, Section 11(d)(3)(C) when executing the Agency Complex Order against other interest in accordance with Options 3, Section 14(d)(2)(ii), Public Customer Complex Orders and Public Customer Responses will be executed first. Thereafter, non-Public Customer Complex Orders, and non-Public Customer Responses will execute pursuant to the priority allocations in Options 3, Section 10(a)(1)(E) and (F).

Finally, for Complex Options Orders, bids and offers for the individual legs will be executed pursuant to Options 3, Section 10 and the Supplementary Material thereto.

Non-Public Customer Complex Orders and non-Public Customer Responses participate in the execution of the Agency Complex Order based upon the percentage of the total number of contracts available at the best price that is represented by the size of the non-Public Customer Complex Order or non-Public Customer Response.

See supra

note 3.

See

proposed Options 3, Section 11(d)(4)(D).

Identical to proposed rule text in the single-leg SOM at Options 3, Section 11(d)(5), prior to entering Agency Orders into the Complex SOM on behalf of a customer, members must deliver to the customer a written notification informing the customer that its order may be executed using Phlx's SOM. Such written notification must disclose the terms and conditions contained in Section 11(d)(5) and must be in a form approved by the Exchange.

See

proposed Options 3, Section 11(d)(5).

The Exchange proposes to note in Options 3, Section 14(b)(17) that a Complex SOM Order is an order entered into the Complex SOM as described in Options 3, Section 11(e).

Split Prices

The Exchange proposes to add rule text at Supplementary Material .04 to Options 3, Section 11 related to Split Prices, which is identical to ISE Supplementary Material .04 to Options 3, Section 11.

The proposed rule text for Split Price would permit Orders and Responses to be entered into the Facilitation and Solicited Order Mechanisms and receive executions at the mid-price between the standard minimum trading increments for the options series (“Split Prices”). This means that orders and Responses for options with a minimum increment of 5 cents may be entered into the Facilitation and Solicited Order Mechanisms and receive executions in 2.5 cent increments (

e.g.,

$1.025, $1.05, $1.075, etc.), and that orders and Responses for options with a minimum increment of 10 cents may be entered into the Facilitation and Solicited Order Mechanism and receive executions at 5 cent increments (

e.g.,

$4.05, $4.10, $4.15). The Exchange notes that Orders and Responses in the market that receive the benefit of the facilitation price under subparagraph (b)(3)(i) of Options 3, Section 11 may also receive executions at Split Prices. Orders executed at a Split Price would be reported to the Options Price Reporting Authority (“OPRA”) and cleared by The Options Clearing Corporation (“OCC”) at the Split Price. The Exchange believes that the ability to utilize split price would provide members with greater flexibility in the pricing of their auction trades and allow a greater opportunity for price improvement for large-size orders. Additionally, the proposed rule change would provide for mechanisms that are competitive with floor-based exchange models, such as Phlx's trading floor, where Split Prices are permitted.

See

Phlx Options 8, Section 25(m), which states that Floor brokers are able to achieve split price priority in accordance with Options 8, Section 25(a)(2), provided, however, that a floor broker who bids (offers) on behalf of a non-market-maker Phlx member broker-dealer (“Phlx member BD”) must ensure that the Phlx member BD qualifies for an exemption from Section 11(a)(1) of the Exchange Act or that the transaction satisfies the requirements of Exchange Act Rule 11a2-2(T), otherwise the floor broker must yield priority to orders for the accounts of non-members.

ISO

The Exchange proposes to add a Facilitation ISO order at Options 3, Section 11(b) that is identical to ISE's Facilitation ISO order at ISE Options 3, Section 11(b).

The Exchange proposes to permit a Facilitation ISO order to be entered into the Facilitation Mechanism for single-leg orders, identical to ISE Options 3, Section 11(b), at Supplementary Material .06 to Options 3, Section 11.

An ISO is defined in Options 3, Section 7(b)(4) as a limit order that meets the requirements of Options 5, Section 1(h) and trades at allowable prices on the Exchange without regard to the ABBO. Simultaneously with the routing of the ISO to the Exchange, one or more additional ISOs, as necessary, are routed to execute against the full displayed size of any Protected Bid, in the case of a limit order to sell, or any Protected Offer, in the case of a limit order to buy, for the options series with a price that is superior to the limit price of the ISO.

A member may submit an ISO to the Exchange only if it has simultaneously routed one or more additional ISOs to execute against the full displayed size of any Protected Bid, in the case of a limit order to sell, or Protected Offer, in the case of a limit order to buy, for an options series with a price that is superior to the limit price of the ISO.

A Facilitation ISO order (“Facilitation ISO”) is the transmission of two orders for crossing pursuant to paragraph (b) above without regard for better priced Protected Bids or Protected Offers (as defined in Options 5, Section 1) because the member transmitting the Facilitation ISO to the Exchange has, simultaneously with the transmission of the Facilitation ISO, routed one or more ISOs, as necessary, to execute against the full displayed size of any Protected Bid or Protected Offer that is superior to the starting Facilitation auction price. Any execution(s) resulting from such sweeps shall accrue to the agency order.

“Protected Bid” or “Protected Offer” means a Bid or Offer in an options series, respectively, that: (a) is disseminated pursuant to the Options Order Protection and Locked/Crossed Market Plan; and (b) is the Best Bid or Best Offer, respectively, displayed by an Eligible Exchange.

See

Options 5, Section 1(o).

The Exchange proposes to accept a Facilitation ISO into the Facilitation Mechanism provided the order adheres to the current order entry requirements for the Facilitation Mechanism as set forth in proposed Options 3, Section 11(b)(1),

but without regard to the ABBO (identical to a regular ISO in Options 3, Section 7(b)(4)). Therefore, Facilitation ISOs must be entered at a price that is equal to or better than the Exchange best bid or offer on the same side of the market as the agency order unless there is a Public Customer order on the same side Exchange best bid or offer, in which case the Facilitation ISO must be entered at an improved price. The Exchange does not check the Exchange best bid or offer on the opposite side of the Facilitation ISO because the underlying Facilitation Mechanism does not check the opposite side Exchange best bid or offer. As discussed above, the Facilitation Mechanism only requires that the opposite side of the agency order be equal to or better than the ABBO.

The Facilitation Mechanism does not check the opposite side Exchange best bid or offer because any interest that is available on the opposite side of the market would allocate against the Facilitation agency order and provide price improvement. As an example of the current underlying Facilitation Mechanism:

Proposed Options 3, Section 11(b)(1) provides that orders must be entered into the Facilitation Mechanism at a price that is (A) equal to or better than the NBBO and the internal BBO on the same side of the market as the agency order unless there is a Public Customer order on the BBO or internal BBO on the same side of the market as the agency order, in which case the order must be entered at an improved price over the Public Customer order; and (B) equal to or better than the ABBO on the opposite side. Orders that do not meet these requirements are not eligible for the Facilitation Mechanism and will be rejected.

Id.

Assume the following market:

Exchange BBO: 1 × 2 (also NBBO)

CBOE: 0.75. × 2.25 (next best exchange quote)

Agency order is entered to buy 50 contracts @2.05

No Responses are received.

The agency order executes with resting 50 lot quote @2. In this instance, the agency order is able to be crossed with the contra side Exchange BBO because in execution, the resting 50 lot quote @2 is able to provide price improvement to the agency order.

Given that the Facilitation ISO is accepted so long as it adheres to the order entry requirements of the underlying Facilitation Mechanism, but without regard to the ABBO, the Exchange believes that it is appropriate and logical to align the order entry checks of the Facilitation ISO in the manner discussed above.

The Exchange processes the Facilitation ISO in the same manner that it processes any other Facilitation Orders, except that it will initiate a Facilitation Mechanism without protecting prices away. Instead, the member entering the Facilitation ISO will bear the responsibility to clear all better priced interest away simultaneously with submitting the Facilitation ISO to the Exchange. The Exchange believes that offering this order type is beneficial for members as it provides them with an efficient method to initiate a Facilitation Mechanism while preventing trade-throughs.

The following example illustrates how Facilitation ISO operates:

Example 8

Assume:

ABBO: 1 × 1.20

Exchange BBO: 0.90 × 1.30

A member enters Facilitation ISO with Agency side to buy 50 @1.25 and simultaneously routes multiple ISOs to execute against the full displayed size of any Protected Bids priced better than the starting Facilitation Mechanism price.

Facilitation ISO auction period concludes with no Responses arriving.

Facilitation ISO executes with contra side 50 @1.25 because the away market Best Offer of 1.20 has been cleared by the ISOs clearing the way for the Agency side to trade with the counter-side order at 1.25.

The Exchange proposes adding a Solicitation ISO order at Options 3, Section 11(d) that is identical to ISE's Solicitation ISO order at ISE Options 3, Section 11(d).

The Exchange proposes to amend Supplementary Material .07 to Options 3, Section 11 to permit a Solicitation ISO Order (“Solicitation ISO”) to be entered into the SOM for single-leg orders, identical to ISE Options 3, Section 11(d). A Solicitation ISO is the transmission of two orders for crossing pursuant to proposed paragraph (d) of Options 3, Section 11 without regard for better priced Protected Bids or Protected Offers (as defined in Options 5, Section 1) because the member transmitting the Solicitation ISO to the Exchange has, simultaneously with the transmission of the Solicitation ISO, routed one or more ISOs, as necessary, to execute against the full displayed size of any Protected Bid or Protected Offer that is superior to the starting Solicited auction price and has swept all interest in the Exchange's book priced better than the proposed auction starting price. Any execution(s) resulting from such sweeps shall accrue to the Agency Order.

The Exchange proposes to accept a Solicitation ISO provided the order adheres to the current order entry requirements for the SOM as set forth in Options 3, Section 11(d)(1),

but

without regard to the ABBO (similar to a regular ISO in Options 3, Section 7(b)(4)). Therefore, Solicitation ISOs must be entered at a price that is equal to or better than the Exchange best bid or offer on both sides of the market; provided that, if there is a Public Customer order on the Exchange best bid or offer, the Solicitation ISO must be entered at an improved price.

Proposed Options 3, Section 11(d)(1) states, orders must be entered into the Solicited Order Mechanism at a price that is equal to or better than the NBBO and the internal BBO on both sides of the market; provided that, if there is a Public Customer order on the BBO or internal BBO, the order must be entered at an improved price over the Public Customer order. Orders that do not meet these requirements are not eligible for the Solicited Order Mechanism and will be rejected.

The Exchange would process the Solicitation ISO in the same manner that it processes other orders entered in the SOM, except that it would initiate a Solicited Order auction without protecting away prices. Instead, the member entering the Solicitation ISO will bear the responsibility to clear all better priced interest away simultaneously with submitting the Solicitation ISO to the Exchange. The Exchange believes that offering this order type is beneficial for members as it provides them with an efficient method to initiate an auction in the SOM while preventing trade-throughs. The following example illustrates how the Solicitation ISO operates:

Example 9

Assume:

ABBO: 1 × 1.20

Exchange BBO: 0.90 × 1.30

A member enters Solicitation ISO with Agency side to buy 500 @1.25 and simultaneously routes multiple ISOs to execute against the full displayed size of any Protected Bids priced better than the starting Solicitation auction price.

Solicitation ISO auction period concludes with no Responses arriving.

Solicitation ISO executes with contra side 500 @1.25.

Note that in the case a Solicitation ISO was entered with the Agency side to buy 500 @1.35, it would be rejected because it was not at or better than the NBBO on both sides (which is inclusive of an Exchange book check). While the 1.20 away Best Offer was cleared by the simultaneously routed ISOs, the Exchange Best Offer of 1.30 would now be viewed as the National Best Offer for purposes of the Solicitation ISO.

Further note that a Facilitation ISO entered with the agency side to buy 50 @1.35 can start in the same example above because it does not have a contra-side (from the agency order perspective) Exchange book check to begin. The Facilitation ISO would go on to allocate against the 1.30 offer on the Exchange book upon the conclusion of the auction.

The Exchange proposes to amend Options 3, Section 7(b)(2) to note that ISOs may be entered into the Facilitation Mechanism or SOM pursuant to Supplementary Material .06 and .07 to Options 3, Section 11. ISE Options 3, Section 7(b)(2) has identical rule text.

Complex Facilitation and Complex SOM Orders With Stock/ETF Components

The Exchange proposes to add rule text at Supplementary Material .08 to Options 3, Section 11 related to Complex Facilitation and Complex SOM Orders with stock/ETF components which is identical to ISE Supplementary Material .08 to Options 3, Section 11. The Exchange proposes to state,

(a) members may only submit Complex Facilitation Orders, Complex SOM Orders, and/or Responses with a stock/ETF component if such orders/Responses comply with the Qualified Contingent Trade Exemption from Rule 611(a) of Regulation NMS. members submitting such orders with a stock/ETF component represent that such orders comply with the Qualified Contingent Trade Exemption. Members of FINRA or The Nasdaq Stock Market (“Nasdaq”) are required to have a Uniform Service Bureau/Executing Broker Agreement (“AGU”) with Nasdaq Execution Services, LLC (“NES”) in order to trade orders containing a stock/ETF component; firms that are not members of FINRA or Nasdaq are required to have a Qualified Special Representative (“QSR”) arrangement with NES in order to trade orders containing a stock/ETF component.

(b) Where one component of a Complex Facilitation Order, Complex SOM Order, and/or Response is the underlying security, the Exchange shall electronically communicate the underlying security component of a Complex Facilitation Order or Complex SOM Order to NES, its designated broker-dealer, for immediate execution. Such execution and reporting will not occur on the Exchange and will be handled by NES pursuant to applicable rules regarding equity trading. The execution price must be within a certain price from the current market, as determined by the Exchange pursuant to Options 3, Section 16(a). If the stock price is not within these parameters, the Complex Facilitation Order, Complex SOM Order, and/or Response is not executable and would be cancelled.

(c) When the short sale price test in Rule 201 of Regulation SHO is triggered for a covered security, NES will not execute a short sale order in the underlying covered security component of a Complex Facilitation Order, Complex SOM Order and/or Response if the price is equal to or below the current national best bid. However, NES will execute a short sale order in the underlying covered security component of a Complex Facilitation Order, Complex SOM Order and/or Response if such order is marked “short exempt,” regardless of whether it is at a price that is equal to or below the current national best bid. When a Response or an unrelated limit complex order on the complex order book includes a short sale order in the underlying covered security, NES will execute such order at (1) its stated limit price if the facilitating member's contra order or the contra-side solicited Complex Order does not include a short sale order in the underlying security; or (2) its stated limit price or better if the facilitating member' contra order or the solicited contra-side Complex Order includes a short sale order in the underlying covered security. If NES cannot execute the underlying covered security component of a Complex Facilitation Order, Complex SOM Order and/or Response in accordance with Rule 201 of Regulation SHO, the Exchange will cancel back the Complex Facilitation Order, Complex SOM Order and/or Response to the entering member. For purposes of this paragraph, the term “covered security” shall have the same meaning as in Rule 201(a)(1) of Regulation SHO.

Today, on Phlx NES performs the same functions with respect to execution, reporting and submission of the underlying stock or ETF component of a Complex Order that it would perform with these amendments for the underlying stock or ETF component of a Complex Order that is entered into any of the proposed new auction mechanisms. The proposed language describing NES is not new language, rather the existing NES language in Options 3, Section 13 regarding PIXL and Options 3, Section 14 regarding Complex Orders is simply being extended to other auction mechanisms to make clear that NES would likewise execute, report and submit of the underlying stock or ETF component of a Complex Order for those auctions. By way of background, NES is a registered broker-dealer and member of various exchanges and the Financial Industry Regulatory Authority (“FINRA”). Today, NES is responsible for the proper execution, trade reporting, and submission to clearing of the underlying stock or ETF component of a Complex Order for Phlx members transacting Complex Orders with a stock or ETF component.

Because these trades with a stock component occur off-exchange, the principal regulator is FINRA;

the execution and reporting of the stock/ETF piece occur otherwise than on Phlx

or any other exchange. The stock execution is handled by NES pursuant to applicable rules regarding equity trading,

including the rules governing trade reporting, trade-throughs and short sales. Specifically, NES reports the trades to the Trade Reporting Facility.

Firms that are members of FINRA are required to have a Uniform Service Bureau/Executing Broker Agreement (“AGU”) with NES in order to trade Complex Orders containing a stock/ETF component. Firms that are not members of FINRA are required to have a Qualified Special Representative (“QSR”) arrangement with NES in order to trade Complex Orders containing a stock/ETF component. This requirement is codified in proposed Supplementary Material .08 to Options 3, Section 11. Accordingly, this process is available to all Phlx members and the stock/ETF component of a Complex Order, once executed, is properly processed for trade reporting purposes. Phlx has identical requirements within its current Options 3, Sections 13(b)(10) and current 14(a)(i) with respect to PIXL and Complex Orders.

In particular, NES has in place policies and procedures designed to prevent the misuse of material non-public information related to stock-tied executions. Of note, NES only receives information about the stock or ETF portion of the order from the Exchange. Today, NES is responsible for the proper execution, trade reporting, and submission to clearing of the underlying stock or ETF component of a Complex Order on Phlx.

NES is responsible for compliance with FINRA rules generally and is subject to examination by FINRA. Specifically, NES is subject to FINRA Rule 3110, which generally requires that the policies and procedures and supervisory systems of a broker-dealer be reasonably designed to achieve compliance with applicable securities laws and regulations and with applicable FINRA rules, including those relating to the misuse of material non-public information. To this end, today, NES has in place policies related to confidentiality and the potential for informational advantages relating to its affiliates, intended to protect against the misuse of material nonpublic information. Phlx establishes and maintains procedures and internal controls reasonably designed to adequately restrict the flow of confidential and proprietary information between the Exchange and NES.

Once the orders are communicated to the broker-dealer for execution, the broker-dealer has complete responsibility for determining whether the orders may be executed in accordance with all of the rules applicable to execution of equity orders.

Specifically, the trades will be reported to the FINRA/Nasdaq TRF which is a facility of FINRA that is operated by Nasdaq, Inc. and utilizes Automated Confirmation Transaction (“ACT”) Service technology.

The Exchange amended Complex Orders in SR-Phlx-2025-17.

See

Securities Exchange Act Release No. 102862 (April 15, 2025), 90 FR 16731 (April 21, 2025) (SR-Phlx-2025-17) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Phlx's Complex Order Functionality). SR-Phlx-2025-17 proposed the same operative date as this proposal as they are both part of the same technology migration.

With respect to trade-throughs, the Exchange believes that the stock/ETF component of a Complex Order is eligible for the Qualified Contingent Trade Exemption from Rule 611(a) of Regulation NMS. A Qualified Contingent Trade is a transaction consisting of two or more component orders, executed as agent or principal, that satisfy the six elements in the Commission's order exempting Qualified Contingent Trades (“QCTs”) from the requirements of Rule 611(a),

which requires trading centers to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent trade-throughs.

The Exchange believes that the stock/ETF portion of a Complex Facilitation or Solicited Order under this proposal complies with all six requirements. Moreover, as explained below, Phlx's System would validate compliance with each requirement such that any matched order received by NES under this proposal has been checked for compliance with the exemption, as follows:

17 CFR 242.611(a).

See

Securities Exchange Act Release Nos. 57620 (April 4, 2008), 73 FR 19271 (April 9, 2008) (“QCT Exemptive Order”).

See also

Securities Exchange Act Release No. 54389 (August 31, 2006), 71 FR 52829 (September 7, 2006) (“Initial QCT Exemption Order”). The QCT Exemption applies to trade-throughs caused by the execution of an order involving one or more NMS stocks that are components of a “qualified contingent trade.” As described more fully in the QCT Exemptive Order, a qualified contingent trade is a transaction consisting of two or more component orders, executed as principal or agent, where: (1) At least one component order is an NMS stock; (2) all components are effected with a product or price contingency that either has been agreed to by the respective counterparties or arranged for by a broker-dealer as principal or agent; (3) the execution of one component is contingent upon the execution of all other components at or near the same time; (4) the specific relationship between the component orders (

e.g.,

the spread between the prices of the component orders) is determined at the time the contingent order is placed; (5) the component orders bear a derivative relationship to one another, represent different classes of shares of the same issuer, or involve the securities of participants in mergers or with intentions to merge that have been announced or since cancelled; and (6) the Exempted NMS Stock Transaction is fully hedged (without regard to any prior existing position) as a result of the other components of the contingent trade.

(1) At least one component order is in an NMS stock: The stock/ETF component must be an NMS stock, which is validated by the System;

(2) all components are effected with a product or price contingency that either has been agreed to by the respective counterparties or arranged for by a broker-dealer as principal or agent: A Complex Order, by definition consists of a single net/debit price and this price contingency applies to all the components of the order, such that the stock price computed and sent to NES allows the stock/ETF order to be executed at the proper net debit/credit price based on the execution price of each of the option legs, which is determined by the Phlx System;

(3) the execution of one component is contingent upon the execution of all other components at or near the same time: Once a Complex Order is accepted and validated by the System, the entire package is processed as a single transaction and each of the option leg and stock/ETF components are simultaneously processed;

(4) the specific relationship between the component orders (

e.g.,

the spread between the prices of the component orders) is determined at the time the contingent order is placed: Complex Orders, upon entry, must have a size for each component and a net debit/credit, which the System validates and processes to determine the ratio between the components; an order is rejected if the net debit/credit price and size are not provided on the order;

(5) the component orders bear a derivative relationship to one another, represent different classes of shares of the same issuer, or involve the securities of participants in mergers or with intentions to merge that have been announced or since cancelled: under this proposal, the stock/ETF component must be the underlying security respecting the option legs, which is validated by the System; and

(6) the transaction is fully hedged (without regard to any prior existing position) as a result of the other components of the contingent trade: Under this proposal, the ratio between the options and stock/ETF must be a conforming ratio (8 contracts per 100 shares), which the System validates, and which under reasonable risk valuation methodologies, means that the stock/ETF position is fully hedged.

A trading center may demonstrate that an Exempted NMS Stock Transaction is fully hedged under the circumstances based on the use of reasonable risk-valuation methodologies.

See

Initial QCT Exemption Order at footnote 9. The Initial QCT Exemption Order stated that, “To effectively execute a contingent trade, its component orders must be executed in full or in ratio at its predetermined spread or ratio.”

See

Initial QCT Exemption Order, 71 FR at 52830. The Initial QCT Order further stated that, “In ratio” clarifies that component orders of a contingent trade do not necessarily have to be executed in full, but any partial executions must be in a predetermined ratio.”

See id

at footnote 11.

Furthermore, proposed Supplementary Material .08 to Options 3, Section 11, provides that members may only submit Complex Facilitation or Solicitation Orders with a stock/ETF component if such orders comply with the Qualified Contingent Trade Exemption. Members submitting such Complex Facilitation or Solicitation Orders with a stock/ETF component represent that such orders comply with the Qualified Contingent Trade Exemption. Thus, the Exchange believes that Complex Facilitation or Solicitation Orders consisting of a stock/ETF component will comply with the exemption and that Phlx's System will validate such compliance to assist NES in carrying out its responsibilities as agent for these orders. The Exchange proposes to add this rule text at Supplementary Material .08 to Options 3, Section 11 to reflect that this requirement to comply with the Qualified Contingent Trade Exemption would be applied to Complex Facilitation or Solicitation Orders the same way it applies today with respect to all other Complex Orders executed on Phlx.

With respect to short sale regulation, the proposed handling of the stock/ETF component of a Complex Facilitation or Solicited Order under this proposal should not raise any issues of compliance with the currently operative provisions of Regulation SHO.

When a Complex Facilitation or Solicited Order

has a stock/ETF component, members must indicate, pursuant to Regulation SHO, whether that order involves a long or short sale. The System will accept Complex Facilitation or Solicitation Orders with a stock/ETF component marked to reflect either a long or short position; specifically, orders not marked as buy, sell or sell short will be rejected by Phlx's System.

The System will electronically deliver the stock/ETF component to NES for execution. Simultaneous with the options execution on Phlx's System, NES will execute and report the stock/ETF component, which will contain the long or short indication as it was delivered by the member to Phlx's System. Accordingly, NES, as a trading center under Rule 201, will be compliant with the requirements of Regulation SHO. Of course, broker-dealers, including both NES and the members submitting orders to Phlx with a stock/ETF component, must comply with Regulation SHO. NES' compliance team currently updates, reviews and monitors NES' policies and procedures including those pertaining to Regulation SHO on an annual basis and it will continue to review and monitors NES' policies and procedures annually.

17 CFR 242.200

et seq.

The Exchange also accepts short sell exempt orders as described herein.

Further, proposed Supplementary Material .08(c) to Options 3, Section 11 provides that when the short sale price test in Rule 201 of Regulation SHO

is triggered for a covered security, NES will not execute a short sale order in the underlying covered security component

of a Complex Order if the price is equal to or below the current national best bid. However, NES will execute a short sale order in the underlying covered security component of a Complex Facilitation or Solicited Order if such order is marked “short exempt,” regardless of whether it is at a price that is equal to or below the current national best bid. If NES cannot execute the underlying covered security component of a Complex Facilitation or Solicited Order in accordance with Rule 201 of Regulation SHO, the Exchange will hold the Complex Facilitation or Solicited Order on the Complex Order Book, if consistent with member instructions (members may always elect to cancel the order).

100

The order may execute at a price that is not equal to or below the current national best bid.

101

Phlx will not cancel back the Complex Order to the entering member unless the member requests that the order be cancelled. However, NES will execute a short sale order in the underlying covered security component of a Complex Facilitation Order, Complex Solicited Order and/or Response if such order is marked “short exempt,” regardless of whether it is at a price that is equal to or below the current national best bid.

102

Further, if NES cannot execute the underlying covered security component of a Complex Facilitation Order, Complex Solicited Order and/or Response in accordance with Rule 201 of Regulation SHO, the Exchange will cancel back the Complex Facilitation Order, Complex SOM Order and/or Response to the entering member.

See

Securities Exchange Act Release No. 61595 (February 26, 2010), 75 FR 11232 (March 10, 2010) (“Rule 201 Adopting Release”).

For purposes of this paragraph, the term “covered security” shall have the same meaning as in Rule 201(a)(1) of Regulation SHO.

100

See

proposed Options 3, Section 16(e). In contrast, Complex Orders in an auction mechanism that cannot be executed in accordance with Regulation SHO will be cancelled back and will not rest on the Complex Order Book as provided in Supplementary Material .08 to Options 3, Section 11 and Supplementary Material .09 to Options 3, Section 13.

101

Options 3, Section 16(e) was amended by SR-Phlx-2025-17.

See

Securities Exchange Act Release No. 102862 (April 15, 2025), 90 FR 16731 (April 21, 2025) (SR-Phlx-2025-17) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Phlx's Complex Order Functionality). SR-Phlx-2025-17 proposed the same operative date as this proposal as they are both part of the same technology migration.

102

See

ISE Supplementary Material .08(c) to Options 3, Section 11 and ISE Supplementary Material .09(c) to Options 3, Section 13.

When a member submits a Complex Facilitation or Complex Solicitation auction Response that includes a short sale order, their short sale order will execute at its stated limit price, but not at a better price if the facilitating member's contra-order or the solicited contra-side Complex Order does not include a short sale order. However, their short sale order will execute at its stated limit price or better if the facilitating member's contra-order or the solicited contra-side Complex Order includes a short sale order. Thus, whether a short sale order included in a Facilitation or Solicitation auction Response receives its stated limit price, or potentially receives a better price than its limit price, depends on whether the contra-side order submitted to the auction with an agency order also included a short sale order. Although the availability of the potential for price improvement for the responder's short sale order will vary, depending on whether the contra-order also included a short sale order, the Exchange notes that for the reasons described below the alternative would be to exclude auction orders that include a short sale order from the Complex Facilitation or Complex Solicitation altogether, which would decrease competition in the auction and potentially reduce opportunities for the agency order to receive price improvement in the auctions. Below are some examples of Complex Facilitation Auction Responses executing within a Complex Facilitation Auction.

103

The same examples apply to a Complex Solicitation Order Mechanism.

Example 10

Complex Facilitation Auction utilizing stated limit price

Phlx BBO for option leg is 0.05 × 0.10

Underlying equity NBBO is 1.05 × 1.10

Reg SHO short sale price test is triggered in the underlying

Stock-Option Strategy is created to buy 1 put, buy 100 shares (cBBO for this strategy is 1.10 × 1.20)

Complex Facilitation to buy strategy, 100 @1.13 (buy stock @1.08 and options @0.05)

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; Counter-Side Order does not include a short sale order

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The Exchange notes that different combinations of stock and options prices could determine the strategy prices in this Example 1 as well as Examples 2 and 3. The Exchange is assuming the noted prices for the examples, however the Exchange notes that multiple price points could achieve the net prices in these examples. In this particular case in Example 1, the agency order could buy stock @1.07 and buy options @0.06 in lieu of the prices noted.

Response 1 is a Public Customer Order to sell, sell short stock leg, 100 @1.11 (sell stock @1.06 and options @0.05)

Response 2 to sell, sell short stock leg, 100 @1.12 (sell stock @1.07 and options @0.05)

Complex Facilitation auction timer concludes

Response 1 trades with Complex Facilitation agency order, option @0.05 and stock @1.06 for net price of 1.11. Response 1 may not trade the underlying equity at 1.05 because it cannot execute a short sale order at a price that is equal to the NBB of the underlying equity.

Example 11

Complex Facilitation Auction utilizing stated limit price

Phlx BBO for option leg is 0.05 × 0.10

Underlying equity NBBO is 1.05 × 1.10

Reg SHO short sale price test is triggered in the underlying

Stock-Option Strategy is created to buy 1 put, buy 100 shares (cBBO for this strategy is 1.10 × 1.20)

Complex Facilitation to buy strategy, 100 @1.13 (buy stock @1.08 and options @0.05); Counter-Side Order does not include a short sale order

Response 1 is a Public Customer Order to sell, sell short stock leg, 100 @1.10 (sell stock @1.05 and options @0.05)

Response 2 to sell, sell short stock leg, 100 @1.12 (sell stock @1.06 and options @0.06)

Complex Facilitation auction timer concludes

Response 2 trades with Complex Facilitation agency order, option @0.06 and stock @1.06 for net price of 1.12. Since the Counter-Side Order does not include a short

sale order, Response 1 is considered for execution at its stated limit price of 1.10; since it cannot trade at 1.10 (specifically it cannot sell the stock @1.05) due to Reg SHO, it does not trade with the Complex Facilitation agency order.

Example 12

Complex Facilitation Auction where Counter-Side is also short selling

Phlx BBO for option leg is 0.05 × 0.10

Underlying equity NBBO is 1.05 × 1.20

Counter-Side Order includes a short sale order

Reg SHO short sale price test is triggered in the underlying

Stock-Option Strategy is created to buy 1 put, buy 100 shares (cBBO for this strategy is 1.10 × 1.30)

Complex Facilitation to Buy strategy, 100 @1.13, Counter-Side Order is a Market Order that is willing to auto-match at any price point within Reg SHO price restriction bound and has `sell short' stock leg instructions and therefore cannot trade the stock component at any price less than or equal to the underlying best bid of 1.05. In this example, if the Counter-Side Order did not have a “sell short” instruction it would not be required to trade at a price that is better than the NBB for security (1.05) and could execute at a price equal to or less than the underlying best bid of 1.05. The price of 1.10 is the cBB (net of option and underlying NBB).

Response 1 is to sell, sell short stock leg, 100 @1.10 (selling stock at 1.05 and options at 0.05; note it cannot trade at 1.10 (specifically it cannot sell stock @1.05) due to Reg SHO)

Response 2 to sell, sell short stock leg, 100 @1.12 (selling stock at 1.06 and options at 0.06)

Complex Facilitation auction timer concludes

The Complex Facilitation agency order first executes 40 contracts with the Counter-Side Market Order, the option leg at 0.05 and stock leg at 1.06 for a net price of 1.11. The remaining 60 contracts from the Complex agency order then execute with Response 1 at the same price. In this example, both the Complex Counter-Side Order and the Response are marked short sale, which permits the Response to trade at a price that is better than its stated limit price.

In this example, Response 1 traded at its next available price in lieu of its stated limit price because both the Counter-Side Order and the Response included a short sale order in the underlying component security. In contrast, if the Counter-Side Order did not include a short sale order then the Counter-Side Order and Response 2 would trade with the Complex Facilitation agency order for a net price of 1.12 (option @0.06 and stock @1.06).

In such case where a Response or an unrelated limit complex order on the complex order book includes a short sale order in the underlying covered security, NES would execute the order at its stated limit price if the facilitating member's contra order or contra-side solicited Complex Order does not include a short sale order in the underlying covered security because the Exchange desires to foster competition by including Responses that have a short sale order in the underlying covered security. In this scenario, the Exchange would consider all prices submitted by responders at which the auction may execute because the member's contra order or contra-side solicited Complex Order does not need to comply with the short sale price test in Rule 201 of Regulation SHO because the order is not short. By using the order's stated limit price in this case, the Exchange would allow the responder with a short sale order to participate in the relevant auction and allocate the best price possible to the agency order while complying with the short sale price test.

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The Exchange believes that including Responses with a short sale order in the underlying covered security may create additional competition in the Complex Facilitation and Complex Solicitation auction while also providing additional opportunity for potential price improvement for the agency order.

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For example, utilizing a Complex Facilitation auction with a BBO of 0.05 × 0.10 and an NBBO for the underlying security component of 1.05 × 1.10, if the Initiating Member submitted an agency order to buy @1.13 and a contra-order to sell @1.13, with auto-match at any price point, and Responder 1 was long @1.10, and Responder 2 was short @1.10 (in this scenario 1.10 would not comply with the short sale price test), pursuant to the proposed amendment, the agency order would receive a price improvement allocation @1.10. In this scenario the improved price of 1.11 would not be allocated to the responder with a short sale rather the price improvement would be applied to the agency order. The Exchange believes it is important to offer price improvement to the agency order over the responder to the auction. Of note, Response 2 that was short @1.10 would be cancelled.

When a Response or an unrelated limit complex order on the complex order book includes a short sale order in the underlying covered security, NES would execute the order at its stated limit price or better if the facilitating member contra order or solicited contra-side Complex Order includes a short sale order in the underlying security component. In this case, each short sale compliant price would be considered in determining the price at which the auction order may execute, which would be at its stated limit price or better. In this scenario, because the facilitating member's contra order or solicited contra-side Complex Order are short, the Exchange will only consider prices that comply with the short sale price test in Rule 201 of Regulation SHO. In this case, all prices that are compliant with the short sale price test are considered when allocating the auction, and both the agency order and responders may receive a better price. The auction would allocate at the agency order's stated limited price or better depending on the prices of the Responses. The auction Responses may execute at their stated limited price or better depending on the final auction price. This is in contrast to the prior scenario where the facilitation member's contra order or contra-side solicited Complex Order does not need to comply with the short sale price test. Utilizing the proposed stated limit price or better where a facilitating member's contra order or contra-side solicited Complex Order includes a short sale order allows the Exchange to potentially provide price improvement opportunity to the agency order.

For these reasons, the processing of the stock/ETF component of a Facilitation or Solicited Complex Order under this proposal will comply with applicable rules regarding equity trading, including the rules governing trade reporting, trade-throughs and short sales. NES's responsibilities respecting these equity trading rules will be documented in NES's written policies and procedures. NES's compliance team currently updates, reviews and monitors NES's policies and procedures regarding equity trading rules on an annual basis and will continue to do so. NES is regulated by FINRA and as such, NES policies and procedures are subject to review and examinations by FINRA. Offering a seamless, automatic execution for both the options and stock/ETF components of a Facilitation or Solicited Complex Order is an important feature that should promote just and equitable principles of trade and remove impediments to and perfect the mechanism of a free and open market and a national market system by deeply enhancing the sort of complex order processing available on options exchanges today. Nevertheless, members could, in lieu of this proposed arrangement with NES, choose, instead, the following alternatives: (i) avoid using a Facilitation or Solicited Complex Order that involves stock/ETFs, (ii) use a trading floor to execute a Complex Order with stock, or (iii) go to another options venue, several of which offer a similar feature.

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Existing Complex Order mechanisms at Cboe, Inc. (“Cboe”) offers a similar end result.

See

Cboe 5.33(l).

The Exchange proposes to amend Options 3, Section 10 to add an applicability section identical to ISE Options 3, Section 10(c) at subparagraph (b).

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This paragraph would make clear

that auctions are not subject to Options 3, Section 10 allocation unless Options 3, Section 10 is specifically referenced in the auction rule. Specifically, the Exchange proposes to state “Applicability. This rule does not apply to the Block Order Mechanism described within Options 3, Section 11(a), the Facilitation Mechanism described within Options 3, Section 11(b), the Solicited Order Mechanism described within Options 3, Section 11(d), PIXL described within Options 3, Section 13, and orders described within Options 3, Section 12, unless Options 3, Section 10 is specifically referenced within ISE rules applicable to the aforementioned functionality.”

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The Exchange would re-letter Options 3, Section 10(b) to “c.”

The Exchange proposes to add rule text about concurrent auctions at Options 3, Section 11(f) that is identical to ISE Options 3, Section 11(f). Specifically, the Exchange proposes to note at Options 3, Section 11(f) the limitations on concurrent Complex Strategy auctions as follows:

Only one Exposure Auction at Supplementary Material .01 to Options 3, Section 14, Complex PIXL auction at Options 3, Section 13, Complex Facilitation Mechanism auction at Options 3, Section 11(c), or Complex Solicited Order Mechanism auction at Options 3, Section 11(e), respectively, will be ongoing at any given time in a Complex Strategy, and such auctions will not queue or overlap in any manner. The Exchange will not initiate an Exposure Auction, Complex PIXL auction, Complex Facilitation Mechanism auction, or Complex Solicited Order Mechanism auction in a Complex Strategy while another Exposure Auction, Complex PIXL auction, Complex Facilitation Mechanism auction, or Complex Solicited Order Mechanism auction in that Complex Strategy is ongoing. If a Complex PIXL auction, Complex Facilitation Mechanism auction, or Complex Solicited Order Mechanism auction for a Complex Strategy has been initiated, an Exposure Auction for that Complex Strategy will not be initiated, and an Exposure Only Complex Order for the Complex Strategy will be cancelled back to the member. An Exposure Order for the Complex Strategy will be processed as an order that is not marked for price improvement.

These proposed limitations are identical to limitations in ISE at Options 3, Section 11(f).

The Exchange proposes to add rule text about concurrent Complex Order and single-leg auctions at Options 3, Section 11(g) that is identical to ISE Options 3, Section 11(g). Specifically, the Exchange proposes to add the following rule text to Options 3, Section 11(g),

Concurrent Complex Order and single leg auctions. An auction in the Block Order Mechanism at Options 3, Section 11(a), Facilitation Mechanism at Options 3, Section 11(b), Solicited Order Mechanism at Options 3, Section 11(d), or PIXL at Options 3, Section 13, respectively, for an option series may occur concurrently with a Complex Order Exposure Auction at Supplementary Material .01 to Options 3, Section 14, Complex Facilitation Auction at Options 3, Section 11(c), Complex Solicited Order Auction at Options 3, Section 11(e), or Complex PIXL auction at Options 3, Section 13, respectively, for a Complex Order that includes that series. To the extent that there are concurrent Complex Order and single leg auctions involving a specific option series, each auction will be processed sequentially based on the time the auction commenced. At the time an auction concludes, including when it concludes early, the auction will be processed pursuant to Options 3, Section 11(a), (b), (d), or Section 13, as applicable, for the single option, or pursuant to Supplementary Material .01 to Options 3, Section 14, Options 3, Section 11(c), 11(e), Options 3, Section 13, as applicable, for the Complex Order, except as provided for at Options 3, Section 13.

This proposed new rule text makes clear that the Exchange will not permit multiple Complex Order auctions to be ongoing in a complex strategy, but will permit concurrent Complex Order strategy auctions to be ongoing with single leg auctions as explicitly noted in the new rule text. The Exchange believes that permitting single leg auctions to occur at the same time as a Complex Order auction as specified above would encourage market participants to utilize the single leg order auction mechanisms as well as the Complex Order mechanisms and, thereby remove impediments to, and perfect the mechanism of, a free and open market and national market system. A member that has auction-eligible interest to execute when another Complex Order auction is ongoing can either re-submit that order to the Exchange after the auction has concluded, or submit the order to another options market that provides similar auction functionality. Phlx market data feeds provide information to members about when a Complex Order auction is ongoing, and members can therefore use this information to make appropriate routing decisions.

With the adoption of the Facilitation and Solicited Order Mechanisms, the Exchange proposes to amend Options 3, Section 16, Complex Order Risk Protections.

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The proposed Complex Order Risk Protections are identical to ISE Options 3, Section 16. Specifically, the Exchange proposes to provide that the strategy protections in Options 3, Section 16(b), which includes a Vertical Spread Protection, a Calendar Spread Protection, a Butterfly Spread Protection, and a Box Spread Protection, will not apply to Complex Orders being auctioned and auction Responses in the Facilitation Mechanism, Solicited Order Mechanism within Options 3, Section 11. This rule text is identical to ISE Options 3, Section 16(b). Complex orders executed in these mechanisms are two-sided orders where the contra-side order is willing to trade with the agency order at an agreed upon price thus removing the risk that the order was executed erroneously outside its intrinsic value.

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SR-Phlx-2025-17 proposed rule text at Options 3, Section 16(b) that provides, Strategy Protections. The following protections will apply throughout the trading day, including pre-market, during the Opening Process and during a trading halt. The protections will not apply to Complex Orders being auctioned and auction responses in PIXL within Options 3, Section 13. Additionally, the following protections will not apply when a Complex Order includes at least one P.M.-settled leg and at least one A.M.-settled leg.

See

Securities Exchange Act Release No. 102862 (April 15, 2025), 90 FR 16731 (April 21, 2025) (SR-Phlx-2025-17) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Phlx's Complex Order Functionality). SR-Phlx-2025-17 proposed the same operative date as this proposal as they are both part of the same technology migration.

Options 3, Section 12

Options 3, Section 12 is currently titled, “Electronic Qualified Contingent Cross Order.” The Exchange proposes to retitle the section “Crossing Orders” identical to the title of ISE Options 3, Section 12.

Customer Cross Orders

The Exchange proposes a Customer Cross Order at Options 3, Section 12 that is identical to ISE Options 3, Section 12. Currently, the Exchange offers market participants the ability to enter Public Customer-to-Public Customer Cross Order via its PIXL Mechanism at Options 3, Section 13(a) and (f) (“Public Customer-to-Public Customer Cross Order”). At this time, the Exchange proposes to relocate the placement of this functionality to Options 3, Section 12, identical to ISE. The Exchange believes that placing the Public Customer-to-Public Customer Cross Order with other crossing mechanisms in Options 3, Section 12 will make the functionality easier to locate in the Rulebook. The Exchange is not amending the current functionality of Public Customer-to-Public Customer Cross Order, rather the functionality is being relocated and the rule text is being harmonized to ISE's Customer Cross Order rules.

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Of note, the proposed Customer Cross Order and current Public Customer-to-Public Customer Cross Order do not require exposure like a PIXL Order. Placing this order type in a new rule where other order types that do not require order exposure

are located will reduce confusion as to the order type.

Currently, the execution of a PIXL Order that is comprised of a Public Customer order to buy and a Public Customer to sell at the same price and for the same quantity is governed by Options 3, Section 13(a) and (f).

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The Exchange proposes to remove the ability to enter such Public Customer-to-Public Customer Cross Orders directly into the PIXL auction for automatic execution. These orders would continue to be entered through FIX

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but would not execute as a PIXL cross order. The Exchange notes that it recently adopted an “Ouch to Trade Options” or “OTTO” order entry protocol

112

that Phlx members may utilize to submit orders. Customer Cross Orders will also be able to be entered through the new OTTO protocol as well. Today, a Public Customer-to-Public Customer Cross Order may only be entered into PIXL and will receive the treatment described within current Options 3, Section 13(f).

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With this proposal, the manner in which Public Customer-to-Public Customer Cross Order are being processed by the System is changing in that they will not execute through PIXL. Members would otherwise receive the same executions with a Customer Cross Order that Public Customer-to-Public Customer Cross Orders receive today when entered through PIXL.

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See

current Options 3, Section 13.

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“Financial Information eXchange” or “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.

See

Options 3, Section 7(a)(i)(A).

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OTTO was adopted in SR-Phlx-2025-05.

See

Securities Exchange Act Release No. 102337 (February 4, 2025), 90 FR 9267 (February 10, 2025) (SR-Phlx-2025-05). SR-Phlx-2025-05 will be implemented at the same time as this proposal.

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In lieu of the procedures in paragraphs (a)-(b) of Options 3, Section 13, 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 including Reference BBO or at the same price as a resting Public Customer Complex Order.

See

current Options 3, Section 13(f).

The Exchange proposes to amend Options 3, Section 12, which is currently reserved, to adopt the title “Crossing Orders” to describe this process. The Exchange proposes to adopt Customer Cross Orders, within Options 3, Section 12(a), which is identical to ISE Options 3, Section 12(a).

In particular, the Exchange proposes to add a definition of a Customer Cross Order at Options 3, Section 7(i) specifying that a Customer Cross Order is comprised of a Public Customer Order to buy and a Public Customer Order to sell at the same price and for the same quantity and such order will trade in accordance with Options 3, Section 12(a). This definition is identical to ISE Options 3, Section 7(i). The Exchange proposes to adopt Options 3, Section 12(a) to specify that Customer Cross Orders are automatically executed upon entry provided that the execution is at or between the best bid and offer on the Exchange and (i) is not at the same price as a Public Customer Order on the Exchange's limit order book and (ii) will not trade through the NBBO. Further, Customer Cross Orders will be automatically canceled if they cannot be executed. Customer Cross Orders may only be entered in the regular trading increments applicable to the options class under Options 3, Section 3. Current Options 3, Section 22(b)(1)

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describes the entry and execution of Customer Cross Orders.

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Current Options 3, Section 22(b)(1) prevents a member from executing agency orders to increase its economic gain from trading against the order without first giving other trading interest on the Exchange an opportunity to either trade with the agency order or to trade at the execution price when the Member was already bidding or offering on the book. However, the Exchange recognizes that it may be possible for an member to establish a relationship with a customer or other person (including affiliates) to deny agency orders the opportunity to interact on the Exchange and to realize similar economic benefits as it would achieve by executing agency orders as principal. It will be a violation of this Rule for a member to be a party to any arrangement designed to circumvent this Rule by providing an opportunity for a customer or other person (including affiliates) to regularly execute against agency orders handled by the member immediately upon their entry into the System.

With this proposal, the execution of a Customer Cross Order would continue to neither execute at the same price as a Public Customer Order on the Exchange's limit order book, nor trade through the NBBO. In connection with this proposed change, the Exchange proposes to remove the last sentence of the first paragraph of Options 3, Section 13 that notes that the execution of a PIXL Order that is comprised of a Public Customer order to buy and a Public Customer is governed by Options 3, Section 13(a) and (f). The Exchange also proposes to remove the sentence in current Options 3, Section 13(a) that states, “Pursuant to paragraph (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.” Finally, the Exchange proposes to remove current Options 3, Section 13(f) which describes the manner in which 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.

The Exchange would re-letter Options 3, Section 13(g) as “f.” The Exchange is eliminating current Options 3, Section 13(f) because paired Public Customer Orders would no longer be entered as PIXL Orders. The Exchange notes that Customer Cross Orders would continue to be executed in the same manner as today within PIXL with paired Public Customer Orders. Today, the execution price may not trade through the better of the NBBO or Reference BBO or at the same price as any resting Public Customer order. Today, the execution price for such a PIXL Order must be expressed in the quoting increment applicable to the affected series or stated otherwise, the minimum increments noted in Options 3, Section 3. Finally, today the paired Public Customer Orders would cancel if not executed.

The prohibition expressed within current Phlx Options 3, Section 13(f) provided that a paired Public Customer Order may be entered provided there is not currently an Auction in progress in the same series or same strategy.

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Today, to initiate the Auction, the Initiating member must mark the PIXL Order for Auction processing. With this proposal, paired Public Customer Orders would not be tagged as a PIXL Auction. The paired Public Customer Orders would be entered as a separate cross and therefore would not potentially cause more than one PIXL Auction to occur in the same series. In conjunction with this change, Phlx proposes to add Customer Cross Orders to Options 3, Section 22(b) and (c) as an exception to the rules for limitations on principal transactions and solicitation orders, which require members to expose trading interest to the market before executing agency orders as principal or before executing agency orders against orders that were solicited from other broker-dealers.

115

Id.

The Exchange proposes to add a sentence to the end of current Options

3, Section 22(b)(1), which currently exists within Options 3, Section 13(f).

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Specifically, the Exchange proposes to add “Further, it would be a violation of this Rule for an Options Participant to circumvent this Rule by providing an opportunity for (A) a Public Customer affiliated with the Participant, or (B) a Public Customer with whom the Participant has an arrangement that allows the Participant to realize similar economic benefits from the transaction as the Participant would achieve by executing agency orders as principal, to regularly execute against agency orders handled by the firm immediately upon their entry as Public Customer-to-Public Customer immediate crosses.” The addition of this sentence to Options 3, Section 22(b)(1) will continue to make clear the type of behavior that is prohibited when executing Customer Cross Orders and for any other functionality in Phlx's rules. The Exchange would surveil Customer Cross Orders in the same fashion that it already surveils for these orders on ISE. ISE Supplementary Material .01 to Options 3, Section 22 and proposed Phlx Options 3, Section 22(b)(1) both prevent a executions of agency orders to increase its economic gain from trading against the order without first giving other trading interests on the exchange an opportunity to either trade with the agency order or to trade at the execution price when a market participant was already bidding or offering on the book.

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Id.

Additionally, the Exchange proposes to offer Complex Customer Cross Orders at proposed Options 3, Section 12(b) that is identical to ISE Options 3, Section 12(b).

Today, Complex paired Public Customer Orders are executed in PIXL. With this proposal, similar to single-leg Customer Cross Orders, the Exchange proposes to remove the ability to enter Complex paired Public Customer orders as a PIXL cross although they will continue to be entered through FIX (and OTTO as noted above) directly as Complex Customer Cross Orders.

As is the case today within PIXL, with this proposal Complex Customer Cross Orders would be automatically executed upon entry so long as: (i) the price of the transaction is at or within the best bid and offer for the same complex strategy on the Complex Order Book; (ii) there are no Public Customer Complex Orders for the same strategy at the same price on the Complex Order Book; and (iii) the options legs can be executed at prices that comply with the provisions of Options 3, Section 14(c)(2).

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Complex Customer Cross Orders will be rejected if they cannot be executed. As is the case for single-leg Customer Cross Orders, Options 3, Section 22(b)(1) applies to Complex Customer Cross Orders.

117

See supra

note 31.

As is the case for any Complex Order with a stock/ETF component, and as described in this proposal, members may only submit Complex Customer Cross Orders with a stock/ETF component if such orders comply with the Qualified Contingent Trade Exemption from Rule 611(a) of Regulation NMS. Members submitting such orders with a stock/ETF component represent that such orders comply with the Qualified Contingent Trade Exemption. Members of FINRA or The Nasdaq Stock Market (“Nasdaq”) are required to have a Uniform Service Bureau/Executing Broker Agreement (“AGU”) with Nasdaq Execution Services, LLC (“NES”) in order to trade orders containing a stock/ETF component; firms that are not members of FINRA or Nasdaq are required to have a Qualified Special Representative (“QSR”) arrangement with NES in order to trade orders containing a stock/ETF component.

Also, as described herein with respect to any Complex Order with a stock/ETF component, where one component of a Complex Customer Cross Order is the underlying security, the Exchange shall electronically communicate the underlying security component of a Complex Customer Cross Order to NES, its designated broker-dealer, for immediate execution. Such execution and reporting will not occur on the Exchange and will be handled by NES pursuant to applicable rules regarding equity trading. The execution price must be within a certain price from the current market, as determined by the Exchange. If the stock price is not within these parameters, the Complex Customer Cross Order is not executable. Finally, as described in this proposal, when the short sale price test in Rule 201 of Regulation SHO is triggered for a covered security, NES will not execute a short sale order in the underlying covered security component of a Complex Customer Cross Order if the price is equal to or below the current national best bid. However, NES will execute a short sale order in the underlying covered security component of a Complex Customer Cross Order if such order is marked “short exempt,” regardless of whether it is at a price that is equal to or below the current national best bid. If NES cannot execute the underlying covered security component of a Complex Customer Cross Order in accordance with Rule 201 of Regulation SHO, the Exchange will cancel back the Complex Customer Cross Order to the entering member. For purposes of this paragraph, the term “covered security” shall have the same meaning as in Rule 201(a)(1) of Regulation SHO.

With the adoption of Customer Cross Orders, the Exchange proposes to amend Options 3, Section 16, Complex Order Risk Protections.

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Specifically, the Exchange proposes to provide that the strategy protections in Options 3, Section 16(b), which include a Vertical Spread Protections, a Calendar Spread Protection, a Butterfly Spread Protection, and a Box Spread Protection, will not apply to Complex Customer Cross Orders pursuant to Options 3, Section 12. This rule text is identical to ISE Options 3, Section 16(b). A Customer Cross Order is a two-sided order where the contra-side order is willing to trade with the agency order at an agreed upon price. The Exchange believes that because paired orders are negotiated in advance by both parties it is unlikely that the parties would agree to transact at prices that would necessitate these protections.

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Options 3, Section 16 was amended in SR-Phlx-2025-71.

See

Qualified Contingent Cross Orders

The Exchange proposes to relocate and amend the description of a Qualified Contingent Cross Order or “QCC Order” from Options 3, Section 7(b)(8) which states that a QCC Order is as that term is defined in Options 3, Section 12. The Exchange proposes to harmonize the rule text at Options 3, Section 12 to ISE Options 3, Section 12.

Specifically, the Exchange proposes to provide more detail and instead provide at Options 3, Section 7(j), that a Qualified Contingent Cross Order is comprised of an originating order to buy or sell at least 1000 contracts that is identified as being part of a qualified contingent trade, as that term is defined in Supplementary Material .01 below, coupled with a contra-side order or orders totaling an equal number of contracts. QCC Orders will trade in accordance with Options 3, Section 12(c). QCC Orders may only be entered through FIX. This description is identical to ISE Options 3, Section 7(j), except that Phlx does not offer Precise and ISE offers that Precise in addition to FIX.

The Exchange proposes aligning its QCC functionality to that of ISE at

Options 3, Section 12. Today, Phlx offers QCC Orders electronically and on its trading floor. The amendments to Options 3, Section 12 solely relate to electronic trading. The amendments to Options 3, Section 8 apply to floor trading. Phlx separately received approval for electronic QCC Orders

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and Floor QCC Orders.

120

Phlx will describe its Floor QCC below.

119

See

Securities Exchange Act Release No. 64249 (April 7, 2011), 76 FR 20773 (April 13, 2011) (SR-Phlx-2011-47) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC To Establish a Qualified Contingent Cross Order).

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See

Phlx's QCC Order facilitates the execution of stock/option Qualified Contingent Trades that satisfy the requirements of the trade through exemption in connection with the QCT Trade Exemption. A Phlx member may effect a QCC Order provided the QCC Order: (i) is at least 1,000 contracts, (ii) meets the QCT Trade Exemption, (iii) is executed at a price at or between the better of the PBBO

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or the NBBO; and (iv) is rejected if a Public Customer order is resting on the Exchange book at the same price. Phlx Options 3, Section 12(a) currently provides that,

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The PBBO represents Phlx's best bid and offer.

A Qualified Contingent Cross Order is comprised of an originating electronic order to buy or sell at least 1,000 contracts that is identified as being part of a qualified contingent trade, as that term is defined in subsection (3) below, coupled with a contra-side order or orders totaling an equal number of contracts.

(1) Qualified Contingent Cross Orders are immediately executed upon entry into the System by an Order Entry Firm provided that (i) no Public Customer orders are at the same price on the Exchange's Limit Order book and (ii) the price is at or between the better of the PBBO and the NBBO.

(A) Qualified Contingent Cross Orders will be automatically cancelled if they cannot be executed.

(B) Qualified Contingent Cross Orders may only be entered in the regular trading increments applicable to the options class under Options 3, Section 3.

(2) Qualified Contingent Cross Orders shall only be submitted electronically from off the Floor to the System. Order Entry Firms must maintain books and records demonstrating that each Qualified Contingent Cross Order was routed to the Exchange System from off of the Floor. Any Qualified Contingent Cross Order that does not have a corresponding record required by this subsection shall be deemed to have been entered from on the Floor in violation of this Rule.

Current Options 3, Section 12(a)(3) describes a “qualified contingent trade.” The Exchange proposes to relocate the QCT Trade Exemption described in Options 3, Section 12(a)(3) to Supplementary Material .01 to Options 3, Section 7

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without change. ISE also describes the QCT Trade Exemption in Supplementary Material .01 to Options 3, Section 7. The QCT Trade Exemption applies to trade-throughs caused by the execution of an order involving one or more NMS stocks that are components of a “qualified contingent trade.” The Exchange also proposes to amend Options 8, Section 30(e)(3), related to a Floor QCC, to refer to the description of a “qualified contingent trade” at proposed to Supplementary Material .01 to Options 3, Section 7. Also, current Supplementary Material .01 to Options 3, Section 12 notes that Stop Orders which have not been elected are not protected orders and are thus not considered for the acceptance or execution of QCC Orders.

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See supra

note 94.

Options 8, Section 32(e) describes a Floor QCC Order as a Floor Qualified Contingent Cross Order comprised of an originating order to buy or sell at least 1,000 contracts, as provided in Options 8, Section 30(e), that is identified as being part of a qualified contingent trade, as that term is defined in subsection Options 8, Section 30(e)(3), coupled with a contra-side order or orders totaling an equal number of contracts. Phlx Options 8, Section 30(e) similarly provides that a Floor QCC Order is comprised of an originating order to buy or sell at least 1,000 contracts that is identified as being part of a qualified contingent trade, coupled with a contra-side order or orders totaling an equal number of contracts. Also, Options 8, Section 30(e)(1) provides that Floor QCC Orders are immediately executed upon entry into the System by an Options Floor Broker provided that (i) no Public Customer Orders are at the same price on the Exchange's limit order book and (ii) the price is at or between the better of the PBBO and the NBBO. Floor QCC Orders shall be submitted into the System by Floor Brokers on the Floor or remotely via the Options Floor Based Management System. Pursuant to Options 8, Section 30(e)(1)(a), a Floor Broker does not have to be present on the Exchange's Trading Floor to submit a Floor QCC Order to the System. A Floor Broker may remotely submit a Floor QCC Order to the System through the Options Floor Based Management System. Pursuant to Options 8, Section 30(e)(1)(b), Floor QCC Orders will be automatically cancelled if they cannot be executed. Pursuant to Options 8, Section 30(e)(1)(c), Floor QCC Orders may only be entered in the regular trading increments applicable to the options class under Options 3, Section 3.

Pursuant to Options 8, Section 30(e)(2), Options Floor Brokers may not enter Floor QCC Orders for their own account, the account of an associated person, or an account with respect to which it or an associated person thereof exercises investment discretion. Options Floor Brokers must maintain books and records demonstrating that each Floor QCC Order was not entered for a prohibited account. Any Floor QCC Order that does not have a corresponding record required by this subsection shall be deemed to have been entered for a prohibited account in violation of Options 8, Section 30(e)(2).

At this time, the Exchange proposes to remove the rule text at Options 3, Section 12(a) related to a QCC Order as well as the rule text in Supplementary Material .01 to Options 3, Section 12 and replace that language in new Options 3, Section 12(c) with rule text identical to ISE Options 3, Section 12(c) as follows:

Qualified Contingent Cross Orders.

Qualified Contingent Cross Orders are automatically executed upon entry provided that the execution (i) is not at the same price as a Public Customer Order on the Exchange's limit order book and (ii) is at or between the better of the internal PBBO or the NBBO.

(1) Qualified Contingent Cross Orders will be automatically canceled if they cannot be executed.

(2) Qualified Contingent Cross Orders may only be entered in the regular trading increments applicable to the options class under in Options 3, Section 3.

The Exchange notes that QCC Orders that are currently offered on Phlx are identical to QCC Orders offered on ISE. The Exchange seeks to harmonize the rule text across its Nasdaq affiliated exchanges to reflect the harmonized functionality. Phlx would continue to comply with its current QCC Order requirements.

With respect to QCC Complex Orders, the Exchange proposes to adopt rule text identical to ISE Options 3, Section 12(d) which provides,

Complex Qualified Contingent Cross Orders.

Complex Options Orders may be entered as Qualified Contingent Cross Orders, as defined in Options 3, Section 7(j). Such orders will be automatically executed upon entry so long as: (i) the price of the transaction is at or within the best bid and offer for the same complex options strategy on the Complex Order Book; (ii) there are no Public Customer Complex Options Orders for the same strategy at the same price on the Complex Order Book; and (iii) the options

legs can be executed at prices that (A) are at or between the better of the internal PBBO or the NBBO for the individual series, and (B) comply with the provisions of Options 3, Section 14(c)(2)(i), provided that no legs of the Complex Options Order can be executed at the same price as a Public Customer Order on the Exchange in the individual options series. Complex Qualified Contingent Cross Orders will be rejected if they cannot be executed. Complex Qualified Contingent Cross Orders may be entered in one cent increments. Each leg of a Complex Options Order must meet the 1,000 contract minimum size requirement for Qualified Contingent Cross Orders.

As proposed, Phlx Complex QCC Orders would automatically executed upon entry so long as: (i) the price of the transaction is at or within the best bid and offer for the same complex options strategy on the Complex Order Book; (ii) there are no Public Customer Complex Options Orders for the same strategy at the same price on the Complex Order Book; and (iii) the options legs can be executed at prices that (A) are at or between the better of the internal PBBO or the NBBO for the individual series, and (B) comply with the provisions of Options 3, Section 14(c)(2)(i),

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provided that no legs of the Complex Options Order can be executed at the same price as a Public Customer Order on the Exchange in the individual options series. Complex QCC Orders will be rejected if they cannot be executed. Also, each leg of a Complex Options Order must meet the 1,000 contract minimum size requirement for QCC Orders. The Exchange notes that Complex QCC Orders that are currently offered on Phlx are identical to Complex QCC Orders offered on ISE with one distinction, with this proposal, Complex QCC Orders may be entered in one cent increments.

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123

Phlx Options 3, Section 14(c)(2)(i) states, a Complex Options Strategies may be executed at a total credit or debit price with one other member without giving priority to bids or offers established on the Exchange that are no better than the bids or offers in the individual options series comprising such total credit or debit; provided, however, that if any of the bids or offers established on the Exchange consist of a Public Customer Order, the price of at least one leg of the complex strategy must trade at a price that is better than the corresponding bid or offer on the Exchange by at least one minimum trading increment for the series as defined in Options 3, Section 3. Phlx separately filed a proposal to adopt Complex Order functionality identical to ISE Options 3, Section 14 with SR-Phlx-2025-17.

See

Securities Exchange Act Release No. 102862 (April 15, 2025), 90 FR 16731 (April 21, 2025) (SR-Phlx-2025-17) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Phlx's Complex Order Functionality). SR-Phlx-2025-17 proposed the same operative date as this proposal as they are both part of the same technology migration.

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See

ISE Options 3, Section 12(b).

Today, Complex QCC Orders may only be entered in the regular trading increments applicable to the options class under Options 3, Section 3, Minimum Increments.

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The Exchange proposes to amend the minimum increments for Complex QCC Orders from the minimum increments standard within Options 3, Section 3 to the minimum increments allowable for Complex Orders at Options 3, Section 14(c)(1),

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which permit bids and offers for Complex Options Strategies to be expressed in one cent ($0.01) increments, and the options leg of Complex Options Strategies may be executed in one cent ($0.01) increments. The Exchange notes that Cboe Rule 5.4(b) similarly permits a Complex QCC Order

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to trade in $0.01 increments. The Exchange's proposed Complex QCC Orders should be permitted to be entered in $0.01 increments, identical to ISE Options 3, Section 14(c)(1). This amendment would place Complex QCC Orders on the same footing as other types of Complex Orders that would trade on Phlx and with Complex QCC Orders traded on Cboe and ISE.

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The pricing of a Complex Order, whether or not it is a QCC Order, is based on the relative price of one option leg to another (as opposed to the outright price of a single option). In this case the standard increment of trading of the individual legs of a Complex Order is less relevant to the pricing of the Complex Order. In addition, each option leg of a Complex QCC Order would continue to meet the same requirements as today for execution as a Complex QCC Order. The Exchange proposes to harmonize the rule text across its Nasdaq affiliated exchanges to reflect the harmonized functionality.

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Options 3, S

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