[Federal Register Volume 89, Number 214 (Tuesday, November 5, 2024)]
[Notices]
[Pages 87919-87921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25638]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101482; File No. SR-Phlx-2024-56]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Adopt New Rules 
at Options 6 and 6C

October 30, 2024.
    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 October 18, 2024, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
a 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to adopt a new rule titled ``Letters of 
Guarantee'' in Options 6, Options Trade Administration, and a new rule 
entitled ``Margin Required Is Minimum'' in Options 6C, Margins.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, 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, 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
    The Exchange proposes to adopt a new rule titled ``Letters of 
Guarantee'' in Options 6, Options Trade Administration and a new rule 
entitled ``Margin Required Is Minimum'' in Options 6C, Margins. Each 
proposed change is described below.
Options 6
    The Exchange proposes to adopt a new rule titled, ``Letters of 
Guarantee,'' at Options 6, Section 4, which is currently reserved. The 
adoption of Options 6, Section 4 is not intended to expand the current 
requirements imposed on members and member organizations, rather it is 
intended to make clear the current requirement to maintain a letter of 
guarantee. By way of background, the letter of guarantee provides that 
the Clearing Member \3\ accepts financial responsibility for all 
Exchange transactions made by the Phlx member organization on whose 
behalf the Clearing Member submits the letter of guarantee. Clearing 
Members guarantee all transactions on behalf of a member and member 
organizations, and therefore bear the risk associated with those 
transactions.
---------------------------------------------------------------------------

    \3\ The term ``Clearing Member'' means a member organization 
which has been admitted to membership in The Options Clearing 
Corporation pursuant to the provisions of the rules of The Options 
Clearing Corporation. See Options 1, Section 1(b)(10).
---------------------------------------------------------------------------

    Today, all Phlx members and member organizations are required to 
have a membership in, or access arrangement with a participant of a 
clearing agency registered with the Commission that maintains 
facilities through which compared trades may be settled.\4\ Further, 
today, Phlx Options 6D, Section 1 makes clear that each member 
organization referred to in paragraph (iii) \5\ shall at all times 
maintain positive net liquid assets and, in its clearing account(s), 
positive equity, provided that said organization has filed with the 
Exchange a letter of guarantee issued on its behalf by a clearing 
member organization of this Exchange which is also a clearing member of 
The Options Clearing Corporation.\6\ At this time, the Exchange 
proposes to adopt a ``Letters of Guarantee'' rule at Options 6, Section 
4, which is substantively identical to Nasdaq ISE, LLC (``ISE'') 
Options 6, Section 4, to make clear that member organizations have an 
obligation to obtain a letter of guarantee.
---------------------------------------------------------------------------

    \4\ See Nasdaq General 3, Rule 1032. Phlx General 3 Rules are 
incorporated by reference to Nasdaq General 3 Rules. See also 
Nasdaq's membership form (https://www.nasdaqtrader.com/content/marketregulation/membership/NASDAQSROMembershipApplicationFinal.pdf) 
which states that all options participants must provide an executed 
clearing letter of guarantee.
    \5\ See Phlx Options 6D, Section 1(a)(iii) provides that each 
member organization or foreign currency options participant 
organization exempt from SEC Rule 15c3-1 and whose principal 
business is as a registered options trader on the Exchange, shall, 
subject to subparagraph (iv) below, at all times maintain a minimum 
of $25,000 in net liquid assets.
    \6\ See Phlx Options 6D Section 1(a)(iv). This rule is intended 
to make clear that member organizations or other participants that 
are exempt from SEC Rule 15c3-1 must also have a letter of 
guarantee.
---------------------------------------------------------------------------

    Similar to ISE, the Exchange proposes to specifically note at 
Options 6, Section 4(a) that no Phlx Market Maker shall make any 
transactions on the Exchange unless a letter of guarantee has been 
issued for such member organization by a Clearing Member and filed with 
the Exchange, and unless such letter of guarantee has not been revoked 
pursuant to paragraph (c) of Options 6, Section 4. This language is 
consistent with Phlx General 3, Rule 1032 and Phlx Options 6D, Section 
1(a)(iv), and the language is substantively identical to ISE Options 6, 
Section 4(a). Further, the Exchange proposes to state at Options 6, 
Section 4(b) that a letter of guarantee shall provide that the issuing 
Clearing Member accepts financial responsibilities for all Exchange 
transactions made by the guaranteed member organization. This language 
is consistent with Phlx Options 6D, Section 1(a)(iv), and the language 
is substantively identical to ISE Options 6,

[[Page 87920]]

Section 4(b). Finally, the Exchange proposes to state at Options 6, 
Section 4(c) that a letter of guarantee filed with the Exchange shall 
remain in effect until a written notice of revocation has been filed 
with the Exchange. A revocation shall in no way relieve a Clearing 
Member of responsibility for transactions guaranteed prior to the 
effective date of such revocation. This language is consistent with 
Phlx Options 6D, Section 1(a)(iv), and the language is substantively 
identical to ISE Options 6, Section 4(c).
    The proposed rule creates a new rule, separate and apart from the 
financial responsibility rules, which makes clear a Market Maker's 
obligation to obtain a letter of guarantee. Further, the rule will 
further harmonize the Exchange's rule with that of other Nasdaq 
affiliated exchanges.\7\
---------------------------------------------------------------------------

    \7\ Nasdaq GEMX, LLC (``GEMX'') and Nasdaq MRX, LLC (``MRX'') 
incorporate by reference ISE's Options 6 rules.
---------------------------------------------------------------------------

Options 6C
    The Exchange proposes to adopt a new rule titled, ``Margin Required 
Is Minimum,'' at Options 6C, Section 5, which is currently reserved. By 
way of background, margin requirements help to offset the risk that 
brokers take when allowing investors to use margin. There are two types 
of margin requirements: initial margin and maintenance margin. Initial 
margin is the minimum amount of equity required to open a new margin 
position and maintenance margin is the minimum amount of equity that 
must be maintained in the account at all times. This proposed rule 
would be substantively identical to Nasdaq BX, Inc. (``BX'') and The 
Nasdaq Options Market LLC (``NOM'') Options 6C, Section 5.
    The Exchange proposes to provide at Phlx Options 6C, Section 5(a) 
that the amount of margin prescribed by Options 6C is the minimum which 
must be required initially and subsequently maintained with respect to 
each account affected thereby; but nothing in these Rules shall be 
construed to prevent a member organization from requiring margin in an 
amount greater than that specified. Further, the Exchange proposes to 
provide at Phlx Options 6C, Section 5(b) that the Exchange may at any 
time impose higher margin requirements with respect to such positions 
when it deems such higher margin requirements to be advisable.
    Today, Phlx Options 6C, Section 3(a) provides that no member 
organization shall effect a transaction or accept or carry an account 
for a customer, whether a member or non-member of the Exchange, without 
proper and adequate margin in accordance with the Margin Rules set 
forth in Options 6C, Sections 3 and 7 and Regulation T. The Exchange 
also proposes to amend Phlx Options 6C, Section 3(a) to note compliance 
with proposed Section 5.
    With this rule, Phlx, similar to BX and NOM, would be able to 
impose higher margin requirements. This rule will further harmonize the 
Exchange's rule with that of other Nasdaq affiliated exchanges.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\9\ in particular, in that it is designed to promote 
just and equitable principles of trade, 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b)
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Options 6
    The Exchange's proposal to adopt a new rule titled, ``Letters of 
Guarantee,'' at Options 6, Section 4, is consistent with the Act 
because it will create a new rule, separate and apart from the 
financial responsibility rules, that makes clear a Market Maker's 
current obligation to obtain a letter of guarantee. Additionally, the 
proposed rule will harmonize Phlx's rule text with other Nasdaq 
affiliated exchanges \10\ with respect to requirements to obtain a 
letter of guarantee. The proposed rule makes clear that Market Makers 
are required to obtain a letter of guarantee from a Clearing Member. 
Similar to Phlx General 3, Rule 1032, which specifies membership 
requirements, and Phlx Options 6D, Section 1(a)(iv), which govern 
financial responsibilities, each Market Maker must obtain a letter of 
guarantee from a Clearing Member, and such letter must be filed with 
the Exchange. Additionally, the letter of guarantee shall provide that 
the issuing Clearing Member accepts financial responsibilities for all 
Exchange transactions made by the guaranteed member organization. 
Finally, the letter of guarantee shall remain in effect until a written 
notice of revocation has been filed with the Exchange and specifies 
that it in no way relieves a Clearing Member of responsibility for 
transactions guaranteed prior to the effective date of such revocation. 
The proposed rule will further harmonize the Exchange's rule with that 
of other Nasdaq affiliated exchanges.\11\
---------------------------------------------------------------------------

    \10\ GEMX and MRX incorporate by reference ISE's Options 6 
rules.
    \11\ Id.
---------------------------------------------------------------------------

Options 6C
    The Exchange's proposal to adopt a new rule, titled ``Margin 
Required Is Minimum,'' at Options 6C, Section 5 is consistent with the 
Act as it would permit Phlx to impose higher margin requirements \12\ 
similar to other options markets; the proposed rule would be 
substantively identical to BX and NOM Options 6C, Section 5. As 
proposed in Options 6C, Section 5(a), the amount of margin prescribed 
by Options 6C would be the minimum which must be required initially and 
subsequently with respect to each account affected thereby; but nothing 
in these Rules shall be construed to prevent a member organization from 
requiring margin in an amount greater than that specified. As proposed 
in Options 6C, Section 5(b), the Exchange may at any time impose higher 
margin requirements with respect to such positions when it deems such 
higher margin requirements to be advisable. Today, Phlx Options 6C, 
Section 3(a) provides that no member organization shall effect a 
transaction or accept or carry an account for a customer, whether a 
member or non-member of the Exchange, without proper and adequate 
margin in accordance with the Margin Rules set forth in Options 6C, 
Sections 3 and 7 and Regulation T. The Exchange's proposal to amend 
Phlx Options 6C, Section 3(a) to note compliance with proposed Section 
5 will make clear the applicable margin rules that a member 
organization must comply with when trading on Phlx. This rule will 
further harmonize the Exchange's rule with that of other Nasdaq 
affiliated exchanges.
---------------------------------------------------------------------------

    \12\ The Exchange notes that higher margin requirements would be 
imposed in times of market volatility and with respect to a 
particular product(s).
---------------------------------------------------------------------------

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.
Options 6
    The Exchange's proposal to adopt a new rule titled, ``Letters of 
Guarantee,'' at Options 6, Section 4, does not impose an intra-market 
burden on competition because all Market Makers will have to uniformly 
comply with this proposed rule which makes clear the current 
requirement that each member organization must provide a letter of

[[Page 87921]]

guarantee from a Clearing Member as specified in the membership 
requirements \13\ and Options 6D, Section 1.\14\ The Exchange notes 
that this rule would apply the same standards to Market Makers similar 
to ISE.
---------------------------------------------------------------------------

    \13\ See supra note 4.
    \14\ See supra note 6.
---------------------------------------------------------------------------

    The Exchange's proposal to adopt a new rule titled, ``Letters of 
Guarantee,'' at Options 6, Section 4, does not impose an inter-market 
burden on competition because other options exchanges may adopt a 
similar rule. Today, ISE has substantively identical rule at Options 6, 
Section 4.
Options 6C
    The Exchange's proposal to adopt a new rule titled, ``Margin 
Required Is Minimum,'' at Options 6C, Section 5 does not impose an 
intra-market burden on competition because all member organizations 
would be subject to the proposed rule and the application of the rule 
would apply uniformly to all member based on the affected product. The 
proposed rule is substantively identical to BX and NOM Options 6C, 
Section 5.
    The Exchange's proposal to adopt a new rule titled, ``Margin 
Required Is Minimum,'' at Options 6C, Section 5 does not impose an 
inter-market burden on competition because other options exchanges may 
adopt a similar rule. Today, BX and NOM have a substantively identical 
rule at Options 6C, Section 5.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#a1d3d4cdc48cc2ceccccc4cfd5d2e1d2c4c28fc6ced7"><span class="__cf_email__" data-cfemail="89fbfce5eca4eae6e4e4ece7fdfac9faeceaa7eee6ff">[email protected]</span></a>. Please include 
file number SR-Phlx-2024-56 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-Phlx-2024-56. 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 website (https://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 website 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 the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-Phlx-2024-56 and should be 
submitted on or before November 26, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-25638 Filed 11-4-24; 8:45 am]
BILLING CODE 8011-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>