41774 Federal Register / Vol. 74, No. 158 / Tuesday, August 18, 2009 / Notices 

proposed rule change’s impact on efficiency, 

competition, and capital formation. 15 U.S.C. 78c(f). 

13 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The current FINRA rulebook consists of (1) 

FINRA Rules; (2) NASD Rules; and (3) rules 

incorporated from NYSE (‘‘Incorporated NYSE 

Rules’’) (together, the NASD Rules and Incorporated 

NYSE Rules are referred to as the ‘‘Transitional 

Rulebook’’). While the NASD Rules generally apply 

to all FINRA members, the Incorporated NYSE 

Rules apply only to those members of FINRA that 

are also members of the NYSE (‘‘Dual Members’’). 

The FINRA Rules apply to all FINRA members, 

unless such rules have a more limited application 

by their terms. For more information about the 

rulebook consolidation process, see FINRA 

Information Notice, March 12, 2008 (Rulebook 

Consolidation Process). 

4The term ‘‘financial institution’’ includes 

Federal and State-chartered banks, savings and loan 

associations, savings banks, credit unions, and the 

service corporations of such institutions required by 

law. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

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

Number SR–Phlx–2009–68 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–Phlx–2009–68. 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 inspection and copying 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–Phlx– 

2009–68, and should be submitted on or 

before September 8, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–19744 Filed 8–17–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60475; File No. SR–FINRA– 

2009–047] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Adopt 

FINRA Rule 3160 (Networking 

Arrangements Between Members and 

Financial Institutions) in the 

Consolidated FINRA Rulebook 

August 11, 2009. 

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

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on July 21, 

2009, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) (f/k/a 

National Association of Securities 

Dealers, Inc. (‘‘NASD’’)) 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 

substantially prepared by FINRA. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to adopt NASD 

Rule 2350 (Broker/Dealer Conduct on 

the Premises of Financial Institutions) 

as FINRA Rule 3160 in the consolidated 

FINRA rulebook, subject to certain 

amendments. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA 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. FINRA 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 

As part of the process of developing 

a new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’),3

FINRA is proposing to adopt NASD 

Rule 2350 (Broker/Dealer Conduct on 

the Premises of Financial Institutions), 

subject to certain amendments, as 

FINRA Rule 3160 (Networking 

Arrangements Between Members and 

Financial Institutions). The details of 

the proposed rule change are described 

below. 

NASD Rule 2350 

NASD Rule 2350 governs the 

activities of broker-dealers on the 

premises of financial institutions.4 Also 

known as the ‘‘bank broker-dealer rule,’’ 

Rule 2350 generally requires brokerdealers that conduct business on the 

premises of a financial institution where 

retail deposits are taken to: (1) Enter 

into a written agreement with the 

financial institution specifying each 

party’s responsibilities and the terms of 

compensation (networking agreement); 

(2) segregate the securities activities 

conducted on the premises of the 

financial institution from the retail 

deposit-taking area; (3) allow access for 

inspection and examination by the SEC 

and FINRA; (4) ensure that 

communications with customers clearly 

identify that the broker-dealer services 

are provided by the member; (5) 

disclose to customers that the securities 

products offered by the broker-dealer 

are not insured like other banking 

products; and (6) make reasonable 


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5See Notice to Members 97–89 (December 1997). 

6See Securities Exchange Act Release No. 39294 

(November 4, 1997), 62 FR 60542, 60547 (November 

10, 1997) (Approval Order). 

7See 17 CFR 247.700–781. 

8See 15 U.S.C. 78c(a)(4). 

9The exceptions in Section 3(a)(4)(B) of the 

Exchange Act apply to ‘‘banks’’ as defined in 

Exchange Act Section 3(a)(6). NASD Rule 2350 

addresses ‘‘financial institutions.’’ See supra note 4. 

10See 17 CFR 247.700 for definitions of the terms 

‘‘nominal one-time cash fee of a fixed dollar 

amount,’’ ‘‘referral,’’ ‘‘contingent on whether the 

referral results in a transaction’’ and ‘‘incentive 

compensation.’’ 

11See 17 CFR 247.701. 

12See 15 U.S.C. 78c(a)(4)(B)(i). 

13The title of the rule would be changed from 

‘‘Broker/Dealer Conduct on the Premises of 

Financial Institutions’’ to ‘‘Networking 

Arrangements between Members and Financial 

Institutions.’’ 

14See 17 CFR 247.701(a)(3). See also Securities 

Exchange Act Release No. 56501, 72 FR 56514, 

56523 (October 3, 2007) (Definitions of Terms and 

Exemptions Relating to the ‘‘Broker’’ Exceptions for 

Banks). (‘‘Banks and broker-dealers are expected to 

comply with the terms of their written networking 

arrangements. If a bank or broker-dealer does not 

comply with the terms of the agreement, however, 

the bank would not become a ‘‘broker’’ under 

Section 3(a)(4) of the Exchange Act or lose its 

ability to operate under the proposed exemption.’’) 

15See 17 CFR 247.701(a)(3)(ii)–(iii). 

efforts at account opening to obtain a 

customer’s written acknowledgement of 

the receipt of such disclosure. Rule 2350 

applies only when broker-dealer 

services are conducted either in person, 

over the telephone, or through any other 

electronic medium, on the premises of 

a financial institution where retail 

deposits are taken, by a broker-dealer 

that has a physical presence on those 

premises.5

NASD Rule 2350 was adopted to 

reduce potential customer confusion in 

dealing with broker-dealers that conduct 

business on the premises of financial 

institutions, and to clarify the 

relationship between a broker-dealer 

and a financial institution entering into 

a networking agreement.6

The Gramm-Leach Bliley Act and 

Regulation R 

In 2007, the SEC and the Board of 

Governors of the Federal Reserve jointly 

adopted rules, known as Regulation R,7

that implement the bank broker 

provisions of the Gramm-Leach Bliley 

Act of 1999 (‘‘GLB’’). These provisions 

replaced what had been a blanket 

exception for banks from the definition 

of ‘‘broker’’ 8 under the Exchange Act 

with eleven exceptions from the 

definition of ‘‘broker’’ that are codified 

in Exchange Act Section 3(a)(4)(B). 

Exchange Act Section 3(a)(4)(B)(i) 

provides an exception from the 

definition of ‘‘broker’’ for banks that 

enter into third-party brokerage (or 

networking) arrangements with a 

broker-dealer (the networking 

exception). Under this exception, a bank 

is not considered to be a broker if it 

enters into a contractual or other written 

arrangement with a registered brokerdealer under which the broker-dealer 

offers brokerage services on or off bank 

premises, subject to certain conditions 

(this differs from NASD Rule 2350, 

which only applies to broker-dealers 

offering brokerage services on a 

financial institution’s premises).9

Although this exception generally 

provides that a bank may not pay its 

unregistered employees incentive 

compensation for referring a customer to 

a broker-dealer, it does permit a bank 

employee to receive a ‘‘nominal onetime cash fee of a fixed dollar amount’’ 

that is not contingent on whether the 

referral results in a transaction with the 

broker-dealer.10 Further, Rule 701 of 

Regulation R provides an exemption for 

referrals of certain institutional and high 

net worth clients that may result in the 

payment of a higher referral fee (i.e., 

incentive compensation of more than a 

nominal amount) to bank employees 

and may be contingent on the 

occurrence of a securities transaction, 

subject to certain additional 

requirements.11

Proposed FINRA Rule 3160 

FINRA proposes to adopt NASD Rule 

2350 into the Consolidated FINRA 

Rulebook as FINRA Rule 3160, subject 

to certain amendments to streamline the 

rule and to reflect applicable provisions 

of GLB and Regulation R. 

First, the proposed rule change would 

amend the scope of the rule to conform 

to the networking exception in GLB. 

NASD Rule 2350 applies only to brokerdealer conduct on the premises of a 

financial institution where retail 

deposits are taken. However, the 

networking exception in GLB applies to 

networking arrangements in which a 

broker or dealer offers brokerage 

services on or off the premises of a 

bank.12 Accordingly, with the exception 

of those requirements addressing the 

physical setting, proposed FINRA Rule 

3160 would apply to a member that is 

a party to a networking arrangement 

with a financial institution under which 

the member offers broker-dealer 

services, regardless of whether the 

member is conducting broker-dealer 

services on or off the premises of a 

financial institution.13

Second, the proposed rule change 

would make certain minor changes to 

the provisions addressing setting, as set 

forth in NASD Rule 2350(c)(1) (Setting). 

The setting provision establishes the 

requirements regarding a member’s 

presence on the premises of a financial 

institution. To better align the rule text 

with the language in the networking 

exception in GLB and its associated 

rules in Regulation R, proposed FINRA 

Rule 3160 would provide that a member 

conducting broker-dealer services on the 

premises of a financial institution: (1) 

Be clearly identified as the person 

performing broker-dealer services and 

distinguish its broker-dealer services 

from the services of the financial 

institution; (2) conduct its broker-dealer 

services in an area that displays clearly 

the member’s name; and (3) to the 

extent practicable, maintain its brokerdealer services in a location physically 

separate from the routine retail deposittaking activities of the financial 

institution. 

Third, the proposed rule change 

would amend the provisions addressing 

networking agreements, in NASD Rule 

2350(c)(2) (Networking and Brokerage 

Affiliate Agreements), to reference 

certain requirements in GLB and 

Regulation R regarding written 

agreements between banks and brokerdealers. As noted above, Rule 701 of 

Regulation R allows a bank employee to 

receive a contingent referral fee not 

subject to the ‘‘nominal amount’’ 

restriction, so long as the client referred 

to the broker-dealer by the bank 

employee is an ‘‘institutional’’ or ‘‘high 

net worth’’ customer, as defined in Rule 

701, and the other conditions of the rule 

are satisfied. 

Rule 701 requires that the written 

agreement between a bank relying on 

the exception from the definition of 

‘‘broker’’ under Exchange Act Section 

(3)(a)(4)(B)(i) and the exemption under 

Rule 701 for institutional and high net 

worth customers and its networking 

broker-dealer to include terms that 

obligate the broker-dealer to take certain 

actions.14 In particular, the written 

agreement between the bank and brokerdealer must require that the brokerdealer: 

(1) Determine that a bank employee is 

not subject to a statutory 

disqualification under Section 3(a)(39) 

of the Exchange Act, have a reasonable 

basis to believe that the customer is a 

‘‘high net worth customer’’ or an 

‘‘institutional customer’’ and conduct a 

suitability or sophistication analysis for 

customers and securities transactions by 

customers; 15

(2) Promptly inform the bank if the 

broker-dealer determines that the 

customer referred to the broker-dealer is 

not a ‘‘high net worth customer’’ or an 

‘‘institutional customer,’’ as applicable 

or the bank employee receiving the 

referral fee is subject to a statutory 


jlentini on DSKJ8SOYB1PROD with NOTICES
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16See 17 CFR 247.701(a)(3)(v). 

17See 17 CFR 247.701(a)(3)(iv). See Securities 

Exchange Act Release No. 56501, 72 FR 56514, 

56526 (October 3, 2007) (re: Suitability or 

Sophistication Analysis by Broker-Dealer). The 

‘‘sophistication’’ analysis is based on the elements 

of NASD IM–2310–3 (Suitability Obligations to 

Institutional Customers). FINRA is seeking 

comment on a proposal regarding a consolidated 

FINRA rule addressing suitability obligations. See 

Regulatory Notice 09–25 (May 2009). 

18See 17 CFR 247.701(b). 

19See Securities Exchange Act Release No. 56501, 

72 FR 56514, 56528 n.135 (October 3, 2007) (‘‘As 

stated in the proposal, the Commission anticipates 

that it may be necessary for either FINRA or the 

Commission to propose a rule that would require 

broker-dealers to comply with the written 

agreements entered into pursuant to Rule 701.’’). 20 15 U.S.C. 78o–3(b)(6). 

disqualification under Section 3(a)(39) 

of the Exchange Act; 16 and 

(3) Inform the customer if the 

customer or the securities transaction(s) 

to be conducted by the customer does 

not meet the applicable standard set 

forth in the suitability or sophistication 

determination in Rule 701; 17

In addition, the broker-dealer may be 

contractually obligated to provide 

certain disclosures to a referred 

customer.18

Proposed FINRA Rule 3160 would 

clarify that networking agreements must 

include all broker-dealer obligations, as 

applicable, in Rule 701 and that 

independent of their contractual 

obligations, members must comply with 

all such broker-dealer obligations. In 

this regard, the release adopting 

Regulation R specifically contemplated 

that FINRA would adopt a rule to 

require that broker-dealers comply with 

the requirements of Rule 701.19

Next, the proposed rule change would 

modify the provisions addressing 

customer disclosure and 

acknowledgements, in NASD Rule 

2350(c)(3) (Customer Disclosure and 

Written Acknowledgement), which 

require members to make certain 

disclosures to customers, at or prior to 

account opening, regarding securities 

products, and to make reasonable efforts 

to obtain a customer’s written 

acknowledgement of the receipt of such 

disclosures at account opening. Such 

disclosures include that the securities 

products are: (1) Not insured by the 

Federal Deposit Insurance Corporation; 

(2) not deposits or other obligations of 

the financial institution and not 

guaranteed by the financial institution; 

and (3) subject to investment risk, 

including possible loss of the principal 

invested. The proposal would not 

incorporate the written 

acknowledgement requirement into 

proposed FINRA Rule 3160, in light of 

the application of the rule to networking 

arrangements regardless of whether the 

member is conducting broker-dealer 

services on or off the premises of a 

financial institution and the obligation 

that members provide the requisite 

disclosures orally and in writing. In this 

context, FINRA believes that oral and 

written disclosure to customers 

regarding securities products is 

sufficient and that requiring a written 

acknowledgement of receipt from 

customers is unnecessary. 

Lastly, the proposed rule change 

would amend the provisions addressing 

communications with the public, in 

NASD Rule 2350(c)(4) (Communications 

with the Public), consistent with the 

extension of proposed FINRA Rule 3160 

to networking arrangements where the 

member conducts broker-dealer services 

on or off the premises of a financial 

institution. NASD Rule 2350(c)(4) 

requires a member to make the same 

disclosures regarding securities 

products discussed above on 

advertisements and sales literature that 

announce the location of a financial 

institution where broker-dealer services 

are provided by the member or that are 

distributed by the member on the 

premises of a financial institution. To 

further reduce potential customer 

confusion, proposed FINRA Rule 3160 

would extend this requirement to 

include all of the member’s 

advertisements and sales literature that 

promote the name or services of the 

financial institution or that are 

distributed by the member at any other 

location where the financial institution 

is present or represented. 

FINRA will announce the 

implementation date of the proposed 

rule change in a Regulatory Notice to be 

published no later than 90 days 

following Commission approval. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,20 which 

requires, among other things, that 

FINRA rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. FINRA believes that the 

proposed rule change will clarify and 

streamline the FINRA requirements for 

broker-dealer networking arrangements 

and will serve to better align the FINRA 

requirements with GLB and Regulation 

R. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve such proposed 

rule change, or 

(B) Institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

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

Number SR–FINRA–2009–047 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–FINRA–2009–047. 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 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 158 / Tuesday, August 18, 2009 / Notices 41777 

21 17 CFR 200.30–3(a)(12). 

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

2A facilitation occurs when a floor broker holds 

an options order for a public customer and a contraside order for the same option series and, after 

providing an opportunity for all persons in the 

trading crowd to participate in the transaction, 

executes both orders as a facilitation cross. See 

Exchange Rule 1064. 

3A JBO participant is a Member, Member 

Organization or non-member organization that 

maintains a JBO arrangement with a clearing 

broker-dealer (‘‘JBO Broker’’) subject to the 

requirements of Regulation T Section 220.7 of the 

Federal Reserve System. See also Exchange Rule 

703. JBO participant orders are excluded from the 

definition of Firm Proprietary because the Exchange 

is unable to differentiate orders of a JBO participant 

from orders of its JBO Broker and therefore is 

unable to aggregate the JBO participant’s orders for 

purposes of the defining Firm Proprietary 

transactions. JBO participant orders may employ 

the F-account type and qualify for the firm 

proprietary charge, but would not be eligible for the 

Monthly Firm Cap. 

4The waiver would not apply to orders where a 

member is acting as agent on behalf of a nonmember. 

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

6 15 U.S.C. 78f(b)(4). 

7NYSE Amex currently charges different rates to 

different market participants in assessing its firm 

facilitation fee. See Securities Exchange Act Release 

No. 60378 (July 23, 2009), 74 FR 38245 (July 31, 

2009) (SR–NYSEAmex–2009–38). 

8A P/A order is an order for the principal account 

of a specialist (or equivalent entity on another 

participant exchange that is authorized to represent 

public customer orders), reflecting the terms of a 

related unexecuted Public Customer order for 

which the specialist is acting as agent. See 

Exchange Rule 1083(k)(i). 

9A Principal Order is an order for the principal 

account of an Eligible Market Maker and is not a 

P/A Order. See Exchange Rule 1083(k)(ii). 

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 inspection and copying in 

the Commission’s Public Reference 

Room, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of FINRA. 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–FINRA–2009–047 and 

should be submitted on or before 

September 8, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–19735 Filed 8–17–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60477; File No. SR–Phlx– 

2009–67] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX, Inc.; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Firm Proprietary Facilitation Orders 

August 11, 2009. 

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

Securities Exchange Act of 1934,1 notice 

is hereby given that on August 5, 2009, 

NASDAQ OMX PHLX, Inc. (‘‘Phlx’’ or 

the ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Phlx. The Commission 

is publishing this notice to solicit 

comments on the proposed rule change 

from interested parties. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to waive the 

Firm Proprietary Options Transaction 

Charge for members executing 

facilitation orders 2 when such members 

are trading in their own proprietary 

account. 

While changes to the Exchange’s fee 

schedule pursuant to this proposal are 

effective upon filing, the Exchange has 

designated this proposal to be effective 

for trades settling on or after August 11, 

2009. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http:// 

nasdaqomxphlx.cchwallstreet.com/ 

NASDAQOMXPHLX/Filings/, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

Phlx 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 Phlx 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, Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to encourage firm facilitation 

transactions, raise additional revenue 

for the Exchange and create incentive 

for Member Organizations to continue to 

facilitate customer order flow. 

Currently, the Firm Proprietary Options 

Transaction Charge is $.24 per contract. 

This fee applies to firm proprietary 

orders (‘‘F’’ account type) in equity 

options products. In addition, Firm 

Proprietary Options Transaction 

Charges is capped in the aggregate for 

one billing month at $75,000 per 

member organization (‘‘Monthly Firm 

Cap’’), except for orders of joint backoffice (‘‘JBO’’) participants.3

The Exchange is proposing to waive 

the $.24 Firm Proprietary Options 

Transaction Charge for members 

executing facilitation orders pursuant to 

Exchange Rule 1064 when such 

members are trading in their own 

proprietary account.4 The Exchange 

desires to waive the Firm Proprietary 

Options Transaction Charge for member 

transacting proprietary trades in their 

own account to encourage member firms 

to facilitate additional customer order 

flow. 

2. Statutory Basis 

The Exchange believes that its 

proposal to amend its schedule of fees 

is consistent with Section 6(b) of the 

Act 5 in general, and furthers the 

objectives of Section 6(b)(4) of the Act 6

in particular, in that it is an equitable 

allocation of reasonable fees and other 

charges among Exchange members. The 

Exchange believes that the waiver of the 

Firm Proprietary Options Transaction 

Charge is equitable because it uniformly 

applies to all member organizations. 

This waiver is consistent with the 

current fee schedule and industry fee 

assessments of member firms that allow 

for different rates to be charged for 

different order types originated by 

dissimilarly classified market 

participants.7 For example, the 

Exchange assesses different transaction 

fees applicable to the execution of 

Principal Acting as Agent Orders (‘‘P/A 

Orders’’) 8 and Principal Orders (‘‘P 

Orders’’) 9 sent to the Exchange via the 

Intermarket Option Linkage (‘‘Linkage’’) 

under the Plan for the Purpose of 

Creating and Operating an Intermarket 

Option Linkage (the ‘‘Plan’’). The 

Exchange charges $0.45 per option 


jlentini on DSKJ8SOYB1PROD with NOTICES