8928 Federal Register / Vol. 77, No. 31 / Wednesday, February 15, 2012 / Notices 

7 15 U.S.C. 78f(b)(7). 

8 15 U.S.C. 78s(b)(2). 

9 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The Exchange notes that it will continue to 

require per Exchange Rule 2.3(c) that all Authorized 

Traders who are to function as Principals on the 

Exchange to be registered consistent with amended 

paragraph (c)(2) of Rule 2.3. 

4The Commission notes that the Outline and the 

text of the proposed rule change are attached to the 

filing, not to this Notice. 

5See Securities Exchange [sic] Release No. 64958 

(July 25, 2011), 76 FR 45629 (July 29, 2011) (SR– 

NASDAQ–2011–095). See also Securities Exchange 

[sic] Release No. 65041 (August 5, 2011), 76 FR 

49822 (August 11, 2011) (SR–NASDAQ–2011–107). 

6See Securities Exchange [sic] Release No. 65040 

(August 5, 2011), 76 FR 49809 (August 11, 2011) 

(SR–NASDAQ–2011–108). 

7NASDAQ Rule 0120(g) states, ‘‘the term 

customer shall not include a broker or dealer.’’ 

Agency refuses to clear and settle the 

trades of that Participant. 

Additionally, the Commission 

believes that Article 13, Rule 2(c) and 

Interpretation and Policy .01 to Article 

13, Rule 2 provide fair suspension 

appeal procedures, and therefore is 

consistent with Section 6(b)(7) of the 

Act,7 which requires that the rules of a 

national securities exchange provide a 

fair procedure for the disciplining of 

members and persons associated with 

members. The Commission notes that, 

where an officer of the Exchange 

suspends a Participant’s trading 

privileges under the narrow 

circumstances described in 

Interpretation and Policy .01, the 

suspension will be lifted automatically 

within two days of the action unless the 

CRO approves it, and the CRO may 

decide to lift the suspension earlier. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,8 that the 

proposed rule change (SR–CHX–2011– 

34) be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–3472 Filed 2–14–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66363; File No. SR–EDGA– 

2012–04] 

Self-Regulatory Organizations; EDGA 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend EDGA Rule 

1.5(q) 

February 9, 2012. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on February 

1, 2012, the EDGA Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘EDGA’’) filed with the 

Securities and Exchange Commission 

(the ‘‘SEC’’ and the ‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which items have 

been prepared by the self-regulatory 

organization. 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 

EDGA Exchange, Inc. (‘‘EDGA’’ or the 

‘‘Exchange’’), proposes to amend its 

rules regarding registration, 

qualification and continuing education 

requirements for Authorized Traders of 

Members that engage solely in 

proprietary trading. EDGA proposes to 

amend Rules 2.3 and 11.4 and the 

Interpretations to Rule 2.5 to recognize 

a new category of limited representative 

registration for proprietary traders. The 

Exchange proposes to expand its 

registration requirements to include the 

Proprietary Traders Qualification 

Examination (‘‘Series 56’’) as one of the 

applicable qualification examinations as 

determined by the Exchange. The 

Exchange also proposes to permit 

Authorized Traders of Members who 

engage solely in proprietary trading to 

obtain the Series 56 license in order to 

effect transactions on the Exchange. In 

addition, the Exchange proposes to 

amend Rule 2.3 to make it substantially 

similar to the rules of the Financial 

Industry Regulatory Authority 

(‘‘FINRA’’) and other Self-Regulatory 

Organizations (‘‘SROs’’) to require 

Members to register two registered 

Principals.3 The text of the proposed 

Proprietary Traders Qualification 

Examination Content Outline is 

attached as Exhibit 3 and the text of the 

proposed rule changes is attached as 

Exhibit 5.4 These documents are 

available on the Exchange’s Web site at 

www.directedge.com, at the Exchange’s 

principal office, and at the Public 

Reference Room of the Commission. 

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 

self-regulatory organization 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 

Background 

In July 2011, NASDAQ filed a 

proposed rule change with the 

Commission to recognize a new category 

of limited representative registration for 

proprietary traders.5 In addition, in 

August 2011, NASDAQ filed a related 

proposed rule change to use the content 

outline for the Series 56 examination 

that would be applicable to proprietary 

traders.6

For the purposes of this category of 

limited representative registration, 

NASDAQ Rule 1011(o) defines a 

proprietary trading firm as a firm that 

embodies the following characteristics: 

The Member is not required by Section 

15(b)(8) of the Exchange Act (the ‘‘Act’’) 

to become a FINRA member but is a 

member of another registered securities 

exchange not registered solely under 

Section 6(g) of the Act; all funds used 

or proposed to be used by the Member 

for trading are the Member’s own 

capital, traded through the Member’s 

own accounts; the Member does not, 

and will not have ‘‘customers’’; 7 all 

Principals and Authorized Traders of 

the Member acting or to be acting in the 

capacity of a trader must be owners of, 

employees of, or contractors to the 

Member. In addition, NASDAQ Rule 

1032(c) defines a proprietary trader as 

an Authorized Trader whose activities 

in the investment banking or securities 

business are limited solely to 

proprietary trading; passes an 

appropriate qualification examination; 

and is an associated person of a 

proprietary trading firm as defined in 

NASDAQ Rule 1011(o). NASDAQ Rule 

1032(c) identifies the Series 56 as the 

appropriate qualification examination 

for proprietary traders’ limited 

representative registration. Furthermore, 

NASDAQ’s proposed category of limited 

representative registration expressly 

excludes those associated persons that 

deal with the public and states those 

associated persons should continue to 


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Federal Register / Vol. 77, No. 31 / Wednesday, February 15, 2012 / Notices 8929 

8See Securities Exchange Act Release Nos. 63843 

(February 4, 2011), 76 FR 7884 (February 11, 2011) 

(SR–ISE–2011–155); and 63314 (November 12, 

2010), 75 FR 70957 (November 9, 2010) (SR–CBOE– 

2010–084). 

9See supra note 3. See also Securities Exchange 

Act Release No. 64699 (June 17, 2011), 76 FR 36945 

(June 23, 2011) (SR–CBOE–2011–056). 

10See note 4. 

11See supra notes 2, 3, 5 and 6. 

12See www.finra.org/Industry/Compliance/

Registration/CRD/ 

13The Exchange proposes to communicate this 

amendment to Members by publishing an 

Information Circular on the Exchange’s Web site. 

Existing Members shall receive additional time to 

satisfy this requirement. 

14The Exchange proposes to create an exception 

to Rule 2.3(c)(2) where a Limited Size Proprietary 

Firm must register at least one Principal with the 

Exchange. In addition, the Exchange may waive the 

two Principal requirement in situations that 

indicate conclusively that only one Principal 

associated with the Member should be required. 

15The Commission notes that EDGA is an equities 

exchange. 

register as General Securities 

Representatives after obtaining the 

Series 7 license. 

NASDAQ worked with FINRA and 

certain other exchanges, many of which 

have recently enhanced their 

registration requirements to require the 

registration of associated persons,8 to 

develop the content outline and 

qualification examination for 

proprietary traders. The Series 56 

examination program is shared by 

NASDAQ and the following SROs: 

Boston Options Exchange, C2 Options 

Exchange, Incorporated; Chicago Board 

Options Exchange, Incorporated 

(‘‘CBOE’’); Chicago Stock Exchange, 

Incorporated; International Securities 

Exchange, LLC (‘‘ISE’’); NASDAQ OMX 

BX, Inc.; NASDAQ OMX PHLX LLC; 

National Stock Exchange, Incorporated; 

New York Stock Exchange, LLC 

(‘‘NYSE’’); NYSE AMEX, Incorporated; 

and NYSE ARCA, Incorporated. 

Members of FINRA, NASDAQ and the 

SROs referenced above developed 

criteria for the Series 56 examination 

program, which CBOE filed with the 

SEC on June 17, 2011.9

Adoption of Series 56 by the Exchange 

The Exchange believes the Series 56 

will assist the Exchange in ensuring it 

has proper registration, qualification 

and continuing education requirements 

for associated persons of Members 

because the Series 56 examination was 

designed to test a candidate’s 

knowledge of proprietary trading in 

general and the industry rules 

applicable to trading of equity securities 

and listed options contracts. The Series 

56 examination covers, among other 

things, recordkeeping and recording 

requirements, types and characteristics 

of securities and investments, trading 

practices and display execution and 

trading systems. While the Series 56 

examination is primarily dedicated to 

topics related to proprietary trading, the 

Series 56 examination also covers some 

general concepts relating to customers. 

The qualification examination 

consists of 100 multiple choice 

questions. Candidates have 150 minutes 

to complete the exam. The content 

outline, which the Exchange attached as 

Exhibit 3,10 describes the following 

topical sections comprising the 

examination: Personnel, Business 

Conduct and Recordkeeping and 

Reporting Requirements, 9 questions; 

Markets, Market Participants, Exchanges 

and SROs, 8 questions; Types and 

Characteristics of Securities and 

Investments, 20 questions; Trading 

Practices and Prohibited Acts, 50 

questions; and Display, Execution, and 

Trading Systems, 13 questions. 

Representatives from the SROs 

mentioned above also intend to meet on 

a periodic basis to evaluate and update, 

as necessary, the Series 56 examination 

program. 

In addition, NASDAQ and some other 

SROs have filed or will file similar 

proposals with the Commission to 

amend current rules to recognize a new 

category of limited representative 

registration for proprietary traders and 

to permit members engaged solely in 

proprietary trading to obtain the Series 

56 license in order to effect trades on 

the applicable exchanges.11 The 

Exchange proposes to implement the 

Series 56 examination program upon 

availability in FINRA’s Web CRD®

system,12 notification to its Members 

and subject to the satisfaction of 

applicable continuing education 

requirements, as described in 

Interpretations .04 and .05 to Rule 2.5. 

The Exchange believes that 

acceptance of the Series 56 qualification 

examination will benefit both the 

Exchange and the applicable proprietary 

traders affected by the proposal. 

Accordingly, pursuant to the amended 

rules, as proposed, the Exchange would 

recognize a new category of limited 

representative registration for 

proprietary traders. In addition, the 

Exchange would expand its registration, 

qualification and continuing education 

requirements to include the Series 56 

examination as one of the applicable 

qualification examinations as 

determined by the Exchange. The 

Exchange would also permit Authorized 

Traders of Members who engage solely 

in proprietary trading to obtain the 

Series 56 license in order to effect 

transactions on the Exchange. The 

Exchange proposes to add Interpretation 

.06 to Rule 2.5 to incorporate the Series 

56 qualification examination as a 

limited representative registration for 

proprietary traders, and proposes to 

identify the characteristics required to 

satisfy the Exchange’s definition of a 

proprietary trading firm and a 

proprietary trader, which are modeled 

after NASDAQ’s rules, as discussed 

above. 

In addition, the Exchange proposes to 

amend Rule 2.3(c)(2) to make it 

substantially similar to the rules of 

FINRA and other SROs to require 

Members to register at least two 

registered Principals.13 The proposed 

amendment applies to firms seeking 

admission as Members and existing 

Members, and states that each Member, 

except a sole proprietorship or a 

proprietary trading firm with 25 or 

fewer Authorized Traders (‘‘Limited 

Size Proprietary Firm’’),14 shall have at 

least two officers or partners who are 

registered as Principals with respect to 

the Member’s equities securities 

business and, at a minimum, one such 

Principal shall be the Member’s Chief 

Compliance Officer (‘‘CCO’’).15

The Exchange proposes additional 

amendments to Rule 2.3(c)(3) and (4) to 

require Members to register a CCO and 

a Financial/Operations Principal 

(‘‘FINOP’’) in order to make the 

Exchange’s rules substantially similar to 

the rules of FINRA and other SROs. In 

addition, this more accurately reflects 

the heightened level of accountability 

inherent in the duty of overseeing 

compliance by a Member of the 

Exchange, and in the oversight and 

preparation of financial reports and the 

oversight of those employed in financial 

and operational capacities at each 

Member firm. The proposed 

amendments state each Member shall 

designate a CCO on the Schedule A of 

Form BD, and requires the individual 

designated as a CCO to register with the 

Exchange and pass the General 

Securities Principal Examination (Series 

24). Similarly, the proposed 

amendments to Rule 2.3 require each 

Member subject to Rule 15c3–1 of the 

Act to designate a FINOP, and requires 

the individual designated as a FINOP to 

successfully complete the Financial and 

Operations Principal Examination 

(Series 27), and register in that capacity 

with the Exchange as prescribed by the 

Exchange. 

The Exchange proposes to make other 

ministerial amendments to Rule 2.3 to 

accommodate the placement of the 

proposed amendments outlined in this 

rule filing. 


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8930 Federal Register / Vol. 77, No. 31 / Wednesday, February 15, 2012 / Notices 

16 15 U.S.C. 78f(b). 

17 15 U.S.C. 78f(c)(3)(B). 18 15 U.S.C. 78f(b)(5). 

19 15 U.S.C. 78s(b)(3)(A). 

20 17 CFR 240.19b–4. 

21 17 CFR 240.19b–4(f)(6). 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,16 in general, and furthers the 

objectives of Section 6(c)(3)(B) of the 

Act.17 Under that section, it is the 

Exchange’s responsibility to prescribe 

standards of training, experience, and 

competence for Exchange Members and 

their associated persons, in particular, 

by offering an alternative qualification 

examination for proprietary traders that 

more closely reflects the practical 

knowledge that is a pre-requisite to 

proprietary trading. Pursuant to this 

statutory obligation, the Exchange 

requests to recognize a new category of 

limited representative registration for 

proprietary traders and to permit 

Authorized Traders of Members who 

engage solely in proprietary trading to 

obtain the Series 56 license. The 

Exchange believes the Series 56 

examination establishes that Authorized 

Traders of Members have attained 

specified levels of competence and 

knowledge generally applicable to 

proprietary trading. 

The Exchange believes that the 

requirement that persons functioning in 

certain supervisory capacities, including 

CCO and a FINOP, be registered through 

the WebCRD® system and be subject to 

higher qualification standards 

appropriately reflects the enhanced 

responsibility of their roles and is 

consistent with the Act. The general 

requirement that Members must have a 

minimum of two Principals responsible 

for oversight of Member organization 

activity, who must be registered as such 

and pass a principal exam, should help 

the Exchange strengthen the regulation 

of its Member firms, and prepare those 

individuals for their responsibilities. 

The nature of the firm, however, may 

dictate that more than two Principals 

are needed to provide appropriate 

supervision. In addition, the 

requirement for each Member to have a 

CCO who must register and pass the 

Series 24 exam and a FINOP who must 

register and pass the Series 27 exam is 

appropriate based on the heightened 

level of accountability inherent in the 

duty of overseeing compliance by a 

Member of the Exchange, and in the 

oversight and preparation of financial 

reports and the oversight of those 

employed in financial and operational 

capacities at each Member firm. 

The Exchange believes that this 

proposal will enhance its ability to 

ensure an effective supervisory structure 

for those conducting business on the 

Exchange. The requirements apply 

broadly and are intended to help close 

a regulatory gap which has resulted in 

varying registration, qualification, and 

supervision requirements across 

markets. The Exchange believes that the 

changes proposed to its rules will 

strengthen its regulatory structure and 

should enhance the ability of its 

Authorized Traders and Members to 

comply with the Exchange’s rules as 

well as with the federal securities laws. 

In addition, the Exchange believes 

that the proposed rule change is 

consistent with the principles of Section 

11A(a)(1)(C)(ii) of the Act in that it seeks 

to assure fair competition among 

brokers and dealers and among 

exchange markets. The Exchange 

believes that the proposed rule will 

promote uniformity of regulation across 

markets, thus reducing opportunities for 

regulatory arbitrage. EDGA’s proposed 

rule change helps ensure that all 

persons conducting a securities business 

through EDGA are appropriately 

supervised, as the Commission expects 

of all SROs. 

The proposed changes are also 

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

Act,18 because they would promote just 

and equitable principles of trade, 

remove impediments to, and perfect the 

mechanism of, a free and open market 

and a national market system, and, in 

general, protect investors and the public 

interest, by enabling such persons to 

qualify for registration with the 

Exchange by offering an alternative 

qualification examination that 

specifically addresses industry topics 

that establish the foundation for the 

regulatory and procedural knowledge 

necessary for such persons electing to 

register as Proprietary Traders. 

Similarly, including new requirements 

for Members to maintain at least two 

Principals, a CCO and a FINOP, 

harmonizes the Exchange’s rules with 

substantially similar rules of FINRA and 

other SROs. Accordingly, the 

modifications to EDGA Rules 2.3 and 

11.4 and the Interpretations to Rule 2.5 

promote just and equitable principles of 

trade, remove impediments to, and 

perfect the mechanism of, a free and 

open market and a national market 

system. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The proposed rule change does not 

impose 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 

The Exchange has not solicited, and 

does not intend to solicit, comments on 

this proposed rule change. The 

Exchange has not received any 

unsolicited written comments from 

members or other interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The Exchange has designated this rule 

filing as non-controversial under 

Section 19(b)(3)(A) of the Act 19 and 

paragraph (f)(6) of Rule 19b–4 

thereunder.20 The Exchange asserts that 

the proposed rule changes: (1) Will not 

significantly affect the protection of 

investors or the public interest; (2) will 

not impose any significant burden on 

competition; (3) and will not become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate. In 

addition, the Exchange provided the 

Commission with written notice of its 

intent to file the proposed rule changes, 

along with a brief description and text 

of the proposed rule changes, at least 

five business days prior to the date of 

filing.21 For the foregoing reasons, this 

rule filing qualifies for immediate 

effectiveness as a ‘‘noncontroversial’’ 

rule change under paragraph (f)(6) of 

Rule 19b–4 because the Series 56 

qualification examination has been 

adopted or will be adopted for use by 

NASDAQ and other SROs. The Series 56 

examination also reflects a collaborative 

effort to adopt an appropriate 

qualification examination for a new 

registration category. In addition, the 

Exchange’s proposal to include new 

requirements for Members to maintain 

at least two Principals, a CCO and a 

FINOP, harmonizes the Exchange’s rules 

with substantially similar rules of 

FINRA and other SROs. 

The rule changes as proposed will 

allow the Exchange to recognize a new 

category of limited representative 

registration for proprietary traders. The 

Exchange believes that Authorized 

Traders of Members who engage solely 

in proprietary trading, obtain the Series 

56 license, and wish to register with 

EDGA would be disadvantaged by 

having to wait for the proposed rule 

changes to become operative. 

Accordingly, because the Exchange 

believes that implementation of the 

standards proposed in this filing is 


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22 17 CFR 240.19b–4(f)(6)(iii). 

23For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

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

24 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 3See FINRA Rule 4360 ‘‘Fidelity Bonds.’’ 

important to its maintenance of a fair 

and orderly market and is noncontroversial, the Exchange requested 

that the Commission waive the 30-day 

pre-operative waiting period contained 

in Rule 19b–4(f)(6)(iii) under the Act.22

Waiver of this requirement will allow 

the Exchange to make the examination 

available as soon as possible to coincide 

with its availability on other exchanges. 

The Commission believes that waiver of 

the 30-day operative delay is consistent 

with the protection of investors and the 

public interest because the proposal 

makes the registration, qualification and 

continuing education requirements of 

EDGA comparable to those of the other 

exchanges and will enable EDGA to 

recognize the Series 56 exam as a valid 

qualification for proprietary traders.23

Therefore, the Commission designates 

the proposal operative upon filing. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend the rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

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 email to rulecomments@sec.gov. Please include File 

No. SR–EDGA–2012–04 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–EDGA–2012–04. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet 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, 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 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–EDGA– 

2012–04 and should be submitted by 

March 7, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.24

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–3470 Filed 2–14–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66362; File No. SR–Phlx– 

2012–13] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Exchange Rule 705 (Fidelity Bonds) 

February 9, 2012. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on January 

26, 2012, NASDAQ OMX 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 

substantially prepared by the Exchange. 

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 

The Exchange proposes to amend 

Exchange Rule 705, entitled ‘‘Members 

Must Carry,’’ to create new requirements 

regarding fidelity bonds and also 

rename the Rule ‘‘Fidelity Bonds.’’ 

The Exchange intends for this Rule to 

become operative on April 2, 2012. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://www.nasdaqtrader.com/ 

micro.aspx?id=PHLXRulefilings, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, 

which are substantially set forth below 

in sections A, B, and C, 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 

The Exchange proposes to amend 

Exchange Rule 705, entitled ‘‘Members 

Must Carry,’’ to create new requirements 

regarding fidelity bonds and also 

rename the Rule ‘‘Fidelity Bonds,’’ in 

substantially the same form as a rule at 

the Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’).3

Currently, Exchange Rule 705 requires 

each member organization that is a 

partnership and is doing business with 

the public and each member 

organization that is a corporation to 

carry fidelity bonds covering its general 

partners and employees or covering its 

officers and employees in such form and 

in such amounts as the Exchange may 

require. The Rule does not apply to 

member organizations that are 

partnerships or corporations which are 

members of another exchange, which 

has comparable rules and regulations to 


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