The Securities and Exchange Commission (SEC) has given immediate effect to a Nasdaq PHLX LLC (“Phlx”) rule change that modifies how certain options market maker quoting obligations are calculated and aggregated.

The change, filed under SR-Phlx-2026-48, amends Phlx Options 2, Section 5(c) governing electronic market maker obligations and quoting requirements. Rather than changing the underlying percentage requirements, the amendment changes how quoting activity is measured for Lead Market Makers (LMMs) and Directed Market Makers (DMMs) within the same member organization.

The SEC’s release, Exchange Act Release No. 34-106064, was published August 10, 2026. Phlx filed the proposal on July 30, 2026, and the change became effective pursuant to the SEC’s framework for immediately effective self-regulatory organization rule changes.

The Bottom Line

The rule change is fundamentally about how compliance is counted—not lowering the quoting standard itself.

LMMs and DMMs remain subject to a 90% continuous two-sided quoting requirement. Under the new methodology, however, qualifying quoting activity performed across LMM and DMM assignments within the same member organization can be aggregated when determining whether the organization satisfies that 90% requirement.

Phlx argues that the change better reflects the operational reality of its market-making structure. Many LMMs also serve as DMMs in the same options series, making the distinction between the two roles less significant for purposes of measuring continuous quoting performance.

What Is Changing?

Under the existing framework, a member organization could face separate compliance calculations for its LMM and DMM quoting obligations.

Both categories are subject to a 90% continuous two-sided quoting standard, but the obligations have historically been measured through separate “buckets.” That could require a firm to satisfy multiple calculations simultaneously even where the same organization was performing overlapping market-making functions.

The amended rule allows qualifying quotes across LMM and DMM assignments to be counted together for purposes of satisfying the 90% requirement.

Importantly, the rule does not eliminate the obligation to quote. It changes the methodology used to determine compliance.

Phlx expressly states that no participant is relieved of its existing obligation to provide continuous two-sided quotations. Instead, compliance with the LMM and DMM obligations will be measured on a combined basis where the relevant badges and options series are assigned within the same member organization.

The 90% Requirement Remains

The distinction matters.

The amended rule does not reduce the 90% threshold applicable to LMMs and DMMs. Both remain subject to the requirement to provide continuous two-sided quotations for 90% of the cumulative number of seconds during the trading day, subject to the applicable exclusions and any higher percentage Phlx may announce.

The change instead gives firms greater flexibility in how their quoting activity is credited toward that threshold.

Phlx's examples illustrate the potential effect.

For example, under the current methodology, a firm with 125 symbols could have activity divided among separate LMM, Directed Order, and Market Maker calculations. Under the proposed methodology, the same firm could have all 125 applicable symbols placed into the 90% calculation where the relevant assignments qualify for aggregation.

For larger market-making organizations, that distinction can materially simplify compliance monitoring.

The 60% Market Maker Requirement Is Not Changing

The amendment leaves the ordinary Market Maker quoting obligation intact.

Streaming Quote Traders (SQTs) and Remote Streaming Quote Traders (RSQTs) remain subject to the existing requirement to provide two-sided quotations for 60% of the cumulative number of seconds, subject to the applicable exclusions and any higher percentage announced by Phlx.

The SEC release makes clear that the proposal does not modify that 60% obligation.

The reason is structural: ordinary Market Makers do not receive the same enhanced allocation benefits or face the heightened 90% quoting requirement applicable to LMMs and DMMs.

Why Phlx Says the Change Makes Sense

Phlx identifies several reasons for the amendment.

First, LMMs and DMMs are already subject to materially similar quoting obligations. Second, many LMMs also operate as DMMs in the same options series. Third, both categories receive preferential allocation treatment under Phlx's allocation rules.

Against that backdrop, Phlx argues that requiring firms to maintain separate compliance calculations creates an administrative burden without a corresponding market benefit.

The Exchange specifically characterizes the current framework as requiring duplicative monitoring that does not necessarily encourage greater or higher-quality quoting activity. Aggregating the activity, in Phlx's view, eliminates that unnecessary burden while preserving the substantive 90% quoting standard.

What This Means for Market Participants

For affected options market makers, the most immediate impact is likely to be compliance operations.

Firms should review how their quoting surveillance and reporting systems currently:

• Separate LMM and DMM quoting activity;

• Calculate continuous quoting percentages;

• Track activity across multiple badges;

• Identify Directed Orders and associated obligations;

• Allocate quoting activity among LMM, DMM and ordinary Market Maker buckets; and

• Demonstrate compliance with Phlx Options 2, Section 5(c).

The new methodology may reduce duplicative monitoring and give firms greater ability to aggregate qualifying quoting activity across LMM and DMM assignments.

That said, firms should not interpret the amendment as a relaxation of their underlying quoting responsibilities. The 90% standard remains, and Phlx will continue to require Market Makers that fall into multiple categories to satisfy the applicable obligations where the rules continue to require separate treatment.

September 1 Implementation Date

Although the rule change became effective upon filing under Section 19(b)(3)(A)(iii) of the Securities Exchange Act and Rule 19b-4(f)(6), Phlx stated that it intends to implement the amended quoting obligations on September 1, 2026. The Exchange also stated that it will issue an Options Regulatory Alert notifying members of the amended requirements.

This creates an important distinction for compliance teams: effective does not mean operationally implemented immediately.

Firms subject to the Phlx requirements have a defined window to review their systems, surveillance logic and internal compliance procedures before the September 1 implementation date.

A Broader Regulatory Signal

While this is a targeted options-market rule change, the underlying approach is worth watching.

The SEC's immediate-effect framework allows exchanges to make certain rule changes effective without the traditional lengthy approval process when the statutory conditions are satisfied. Here, Phlx represented that the amendment would not significantly affect investor protection or the public interest, impose a significant burden on competition, or become operative for 30 days from filing absent Commission action.

The substance of the amendment also reflects a familiar regulatory objective: preserve the substantive compliance standard while reducing unnecessary procedural complexity.

For regulated firms, that distinction is increasingly important. Compliance obligations do not necessarily become less stringent simply because regulators or exchanges simplify the methodology used to demonstrate compliance.

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This blog post is for informational purposes only and is not legal advice. Please consult with a Launch Legal attorney regarding your specific situation.