2180 Federal Register / Vol. 76, No. 8 / Wednesday, January 12, 2011 / Notices 

15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 63318 

(November 16, 2010), 75 FR 71155 (‘‘Notice’’). 

4Specifically, the rule provides that ‘‘[n]o person 

shall at the same time be a partner, * * * officer, 

director, stockholder, or associated person of more 

than one member or participant organization, nor 

shall he be affiliated in any manner with a nonmember or non-participant organization which is 

engaged in the securities business, unless such 

affiliation has been disclosed to and approved in 

writing by the member and/or participant 

organizations and such approval has been filed with 

the Office of the Secretary.’’ 

5For example, a Series A–1 permit holder is 

required to display a badge when on the trading 

floor that identifies the member organization on 

whose behalf the trader is trading that day. A Series 

A–1 permit holder may not trade for more than one 

member organization on the same day. 

6A Series A–1 permit holder may not trade for 

more than one member organization on the same 

day. 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2011–003 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2011–003. This 

file number should be included on the 

subject line if e-mail is used. 

To help the Commission process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s Internet Web site 

(http://www.sec.gov/rules/sro.shtml). 

Copies of the submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room on official business 

days between the hours of 10 a.m. and 

3 p.m. Copies of such filing also will be 

available for inspection and copying at 

the principal offices of the Exchange. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2011–003, and 

should be submitted on or before 

February 2, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–436 Filed 1–11–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63647; File No. SR–Phlx– 

2010–148] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Order 

Granting Approval of a Proposed Rule 

Change Relating to Certain 

Membership Rules Including 

Affiliations and Lapse of Membership 

Applications 

January 5, 2011. 

I. Introduction 

On November 5, 2010, NASDAQ 

OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change relating to certain membership 

rules. The proposed rule change was 

published for comment in the Federal 

Register on November 22, 2010.3 The 

Commission received no comment 

letters on the proposal. This order 

approves the proposed rule change. 

II. Description of the Proposed Rule 

Change 

A. Affiliations 

Currently, Phlx Rule 793 

(‘‘Affiliations—Dual or Multiple’’) allows 

a person that holds a Phlx trading 

permit to associate or affiliate with one 

or more Phlx members or a non-member 

that is engaged in the securities business 

if such affiliation is approved in writing 

by the member and disclosed to the 

Exchange.4 However, no member may 

use his or her trading permit to qualify 

more than one member organization. 

Further, the rule provides that the 

Exchange could disapprove multiple 

affiliations that the Exchange believed 

were ‘‘inconsistent with Exchange 

standards of financial responsibility, 

operational capability, or compliance 

responsibility.’’ 

Among other things, Rule 793 allows 

a broker-dealer to seek an affiliation in 

order to obtain membership status 

without the need to secure a 

membership seat (or, subsequent to the 

Exchange’s demutualization, a trading 

permit). Such an arrangement would 

have been appropriate, for example, 

where a broker-dealer sought only 

electronic access to the Exchange, since 

the Exchange only requires one permit 

to qualify a member organization. 

Another example would be applicable 

in the case of access to the Phlx trading 

floor. Because Phlx requires each person 

associated with a member organization 

on the trading floor who functions in a 

trading capacity to have a permit, and 

every trader on the floor must possess 

a Series A–1 permit,5 affiliation could 

allow floor traders to affiliate with 

another member organization to satisfy 

certain trading or staffing requirements. 

The Exchange now proposes to 

eliminate Rule 793. In its place, the 

Exchange proposes to amend existing 

Rule 908 (‘‘Rights and Privileges of A– 

1 Permits’’) to add a new paragraph (b)(i) 

to allow a trading permit holder on the 

Exchange’s floor to affiliate with up to 

two member organizations that are 

under common ownership. Specifically, 

the proposed rule provides that: 

‘‘[n]otwithstanding applicable By-Laws 

and Rules conditioning membership, a 

Series A–1 permit holder on the 

Exchange’s trading floor may be 

affiliated with up to two (2) member 

organizations (a primary and a 

secondary member organization) that 

are under common ownership * * *.’’ 

The proposed rule would define 

‘‘common ownership’’ to be at least 75% 

common ownership between the 

member organizations. Further, both the 

primary and secondary member 

organizations would need to notify the 

Phlx Membership Department of the 

affiliation, and such notification must 

include an attestation of common 

ownership, the names of the individuals 

responsible for supervision of the 

permit holder, and the Exchange 

account numbers for billing purposes. 

Under the proposed rule, a Series A–1 

permit holder would have the ability to 

engage in trading activity on the 

Exchange’s floor on behalf of either the 

primary or secondary member 

organization that the permit is affiliated 

with per Rule 908(b)(i).6

Despite the ability to affiliate with up 

to two member organizations, the 

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Federal Register / Vol. 76, No. 8 / Wednesday, January 12, 2011 / Notices 2181 

7 In particular, the Exchange proposed in F–9 to 

remove references to ‘‘dual’’ so that the rule simply 

refers to affiliations; to require reports of affiliations 

to be sent to the Membership Department instead 

of the Exchange’s Office of the Secretary to conform 

with the text of amended Rule 908; replace the 

reference to Rule 793, which is being deleted, with 

a reference to Rule 908; amend the language in 

OFPA F–9 to remove the requirements to explain 

compensation since affiliations would only be 

permitted for organizations that are under common 

ownership; and add a sentence indicating that floor 

members must adhere to the requirements in 

renamed (a) and (b), and to reference Exchange Rule 

1020 for the newly named F–9(ii)(a). 

8The Membership Department posts the requisite 

forms on the Exchange’s Web site at http:// 

www.nasdaqomxtrader.com/ 

Trader.aspx?id=membership_phlx. The 

Membership Department updates the forms from 

time to time and makes them available on this Web 

site. 

9See Notice, supra note 3, at 71157. 

10See id. 

11The Commission notes that the Exchange 

proposed to renumber Rule 900.2(e) as 900.2(f) due 

to the new proposed Rule 900.2(e). 

12The purpose of the new application would be 

to update all information to provide the 

Membership Department with current information 

on which to base a decision to accept the applicant 

for membership. The Exchange expressed its intent 

to file a proposal with the Commission to amend 

its Fee Schedule to reflect the lapsed application 

fee. 

13See Notice, supra note 3, at 71157. The 

Exchange also may extend the time period when it 

makes a request for additional information 

relatively close to the 90-day deadline. See id. 

14The Exchange’s Application Fee can be found 

on the Fee Schedule located on the Exchange’s Web 

site at http://www.nasdaqomxtrader.com/content/ 

marketregulation/membership/phlx/feesched.pdf. 

15 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 16 15 U.S.C. 78f(b). 17 15 U.S.C. 78f(b)(5). 

proposal provides that a Series A–1 

permit holder would be required to 

comply with all current membership 

By-Laws and Rules. Further, both the 

permit holder and the affiliated member 

organizations also must comply with all 

applicable trading, registration, 

qualification, examination, and other 

membership requirements. In particular, 

the Series A–1 permit holder is required 

to obtain and maintain all necessary 

qualifications (including examinations) 

and registrations. In addition, the Series 

A–1 permit holder would be required to 

disclose to the Exchange the individuals 

at each member organization (both the 

primary and secondary member 

organization) that are responsible for 

supervising the Series A–1 permit 

holder. 

As a consequence of the proposal, any 

Series A–1 permit holder that currently 

affiliates with an unrelated party would 

not be permitted to continue to qualify 

that member organization. In addition, a 

permit holder would not be permitted to 

maintain an affiliation with more than 

two member organizations, and both 

organizations must be under common 

ownership. 

In recognition of the proposed 

deletion of Rule 793 and new Rule 

908(b)(i), the Exchange also proposed to 

make conforming changes to other rules 

that reference affiliation. In particular, 

the Exchange proposed to amend 

Option Floor Procedure Advice 

(‘‘OFPA’’) F–9 to conform to new Rule 

908(b)(i).7 In addition, the Exchange 

would remove references to ‘‘dual 

affiliation’’ in OFPA F–11 and 

Regulation 3 in favor of a reference 

simply to ‘‘affiliation,’’ and would 

replace a reference to Rule 793 with 

Rule 908 in OFPA F–11. The Exchange 

further would amend Rule 908(h) to add 

an ‘‘or’’ to the text of the rule to make 

clear that a permit may be transferred 

either intra-firm or to an inactive 

nominee registered with the Exchange. 

B. Lapsed Applications 

In addition, the Exchange proposes to 

amend Rule 900.2 to address lapsed 

membership applications. Pursuant to 

Exchange Rule 900.2, applicants 

desiring membership in the Exchange 

are required to submit information in a 

form prescribed by the Membership 

Department.8 According to the 

Exchange, after a 90 calendar day period 

has elapsed, the information provided 

by the applicant is stale and no longer 

provides a reliable or reasonable basis 

for the Exchange to make a 

determination on admitting a person for 

membership.9 The Exchange 

represented that the Membership 

Department expends a considerable 

amount of resources requesting updates 

from members and researching 

information to make a reasonable 

determination when an application is 

outdated.10

To address this situation, the 

Exchange proposed to amend Exchange 

Rule 900.2 11 to require persons seeking 

membership to the Exchange to provide 

all information and respond to 

subsequent requests from the 

Membership Department for 

information within a 90 calendar day 

period. Any failure to respond in the 

prescribed period would result in the 

application lapsing. If an application 

lapses, the person would be required to 

submit a new application if it wants to 

continue with its application.12 Upon a 

showing of good cause, the Exchange 

may extend the timeframe.13 The 

Exchange would not refund the fee 

associated with submitting an 

application and the applicant would be 

required to pay a new fee to resubmit 

the application if it chooses to proceed 

with its application for membership.14

III. Discussion 

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange,15 and, in particular, the 

requirements of Section 6(b) of the 

Act 16 and the rules and regulations 

thereunder. Specifically, the 

Commission finds that the proposal is 

consistent with Section 6(b)(5) of the 

Act,17 in that the proposal promotes just 

and equitable principles of trade, 

prevents fraudulent and manipulative 

acts, removes impediments to and 

perfects the mechanism of a free and 

open market and a national market 

system, and, in general, protects 

investors and the public interest. 

The Commission believes the 

proposal, which limits the ability of a 

Series A–1 permit holder to qualify 

other organizations for Exchange 

membership is reasonable, as it will 

continue to allow flexibility in 

permitting a permit holder to qualify up 

to one other member organization (the 

‘‘secondary member organization’’) for 

Exchange membership that is under 

common ownership with the primary 

member organization with which the 

permit holder is associated. While the 

Commission notes that based on the 

proposal, a Series A–1 permit holder 

who currently affiliates with an 

unrelated member organization (not 

under common ownership) to qualify 

the member organization for electronic 

access or access to the trading floor 

would not be permitted to continue to 

qualify that member organization, the 

Commission believes that the proposal 

is a reasonable alternative that may 

assist firms in addressing staffing issues 

for entities under a common ownership 

that conduct a floor-based trading 

business. 

The Exchange’s proposal recognizes 

the changed environment in terms of the 

means by which persons obtain access 

to the Exchange. Current Rule 793 was 

adopted when the Exchange was a 

membership organization and access 

was obtained through ownership of a 

limited number of seats on the 

Exchange. Rule 793 allows persons to 

access and trade on the Exchange that 

might not have otherwise been able to 

purchase or obtain a membership seat. 

However, since it demutualized, the 

Exchange now offers access via an 

unlimited number of trading permits, 

which can be more readily obtained by 

qualified individuals compared to 

former membership seats. In this 

respect, the Exchange’s proposal 

mstockstill on DSKH9S0YB1PROD with NOTICES

2182 Federal Register / Vol. 76, No. 8 / Wednesday, January 12, 2011 / Notices 

18 15 U.S.C. 78s(b)(2). 

19 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 63339 

(November 18, 2010), 75 FR 71771 (‘‘Notice’’). 

4Commentary .05 also permits strike price 

intervals of $5 or greater where the strike price is 

greater than $25 but less than $200; and $2.50 or 

greater where the strike price is $25 or less. 

5 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

6 15 U.S.C. 78f(b)(5). 

modernizes the affiliation provision in 

recognition of the transition of the 

Exchange from a mutual to a 

demutualized organization. 

Furthermore, the Commission notes 

that the Exchange represented in its 

proposal, as described above, that the 

Exchange would continue to have 

access to information on an affiliation 

necessary to carry out its regulatory 

responsibility with respect to the 

member organizations and their 

affiliated persons. Further, an affiliation 

would not excuse a person from any of 

the Exchange’s By-Laws and rules 

governing membership. Notably, both 

the permit holder and the affiliated 

member organizations must comply 

with all applicable registration, 

qualification, examination, and other 

membership requirements, and the 

permit holder must continue to obtain 

and maintain all necessary 

qualifications (including examinations) 

and registrations. Further, the Series A– 

1 permit holder must disclose to the 

Exchange the individuals at each 

member organization (both the primary 

and secondary member organization) 

that are responsible for supervising the 

Series A–1 permit holder. The 

Commission believes that these 

provisions are designed to ensure 

compliance with applicable 

membership rules and should assure the 

Exchange’s oversight of any affiliation. 

In addition, the Commission believes 

that the Exchange’s proposed 

conforming changes to OFPA F–9, F–11, 

and Regulation 3 appropriately reflect 

the proposed deletion of Rule 793 and 

the new provision in Rule 908(b)(i). 

Separately, the Commission believes 

that the proposal to amend the language 

in Rule 908(h) should provide Exchange 

members with clarity as to the transfer 

of permits. 

Finally, the Commission believes that 

requiring applicants for Phlx 

membership to respond to requests for 

documentation or additional 

information within a 90 calendar day 

period, absent a showing of good cause, 

is reasonable and should provide the 

Exchange’s Membership Department upto-date information that it can utilize to 

make decisions concerning membership 

applications. The 90-day response 

period and subsequent lapse of an 

application for non-response should 

encourage prompt replies by applicants 

to Exchange requests for information 

and documentation and should assure 

that the Exchange has reliable and 

current information on which to base 

membership decisions. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,18 that the 

proposed rule change (SR–Phlx–2010– 

148) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–435 Filed 1–11–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63654; File No. SR–Phlx2010–158] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Order 

Granting Approval of Proposed Rule 

Change Establishing a $5 Strike Price 

Program 

January 6, 2011. 

I. Introduction 

On November 12, 2010, NASDAQ 

OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to allow the Exchange to list and 

trade option series with strike price 

intervals of $5 or greater where the 

strike price is more than $200 in up to 

five option classes on individual stocks. 

The proposed rule change, as amended, 

was published for comment in the 

Federal Register on November 24, 

2010.3 The Commission received no 

comment letters on the proposal. This 

order approves the proposed rule 

change. 

II. Description of the Proposal 

Phlx has proposed to modify 

Commentary .05 to Exchange Rule 1012 

to allow the Exchange to list and trade 

series in intervals of $5 or greater where 

the strike price is more than $200 in up 

to five option classes on individual 

stocks (‘‘$5 Strike Price Program’’). 

Currently, Exchange Rule 1012 at 

Commentary .05 permits strike price 

intervals of $10 or greater where the 

strike price is $200 or more.4 The 

proposal would allow the Exchange to 

list series in intervals of $5 or greater 

where the strike price is more than $200 

in up to five option classes on 

individual stocks. 

In support of its proposal, Phlx stated 

that it believes the proposed $5 Strike 

Price Program would provide investors 

increased opportunities to improve 

returns and manage risk in the trading 

of equity options that overlie high 

priced stocks. In addition, the Exchange 

believes the proposed $5 Strike Price 

Program would allow investors to 

establish equity options positions that 

are better tailored to meet their 

investment, trading, and risk 

management requirements. 

Phlx further stated that it has 

analyzed its capacity and represented 

that the Exchange and the Options Price 

Reporting Authority have the necessary 

systems capacity to handle the potential 

additional traffic associated with the 

listing and trading of new series 

associated with the $5 Strike Price 

Program. 

III. Discussion 

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.5 Specifically, the 

Commission finds that the proposal is 

consistent with Section 6(b)(5) of the 

Act,6 which requires, among other 

things, that the rules of a national 

securities exchange be designed to 

promote just and equitable principles of 

trade, to prevent fraudulent and 

manipulative acts, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. 

As the Exchange notes, the proposal 

should provide investors with added 

flexibility in the trading of options on 

high-priced securities and allow 

investors to establish options positions 

that are more precisely tailored to meet 

their investment objectives. The 

Commission believes that the proposal 

strikes a reasonable balance between the 

Exchange’s desire to accommodate 

market participants by offering a wider 

array of investment opportunities and 

the need to avoid unnecessary 

proliferation of options series and the 

mstockstill on DSKH9S0YB1PROD with NOTICES