51328 Federal Register / Vol. 73, No. 170 / Tuesday, September 2, 2008 / Notices 

13 17 CFR 200.30–3(a)(12). 

1The Exchange recently changed its name to 

NASDAQ OMX PHLX, Inc. See Securities Exchange 

Act Release No. 58380 (August 18, 2008) (SR–Phlx2008–61). 

2 15 U.S.C. 78s(b)(1). 

3 17 CFR 240.19b–4. 

4See Securities Exchange Act Release No. 58168 

(July 16, 2008), 73 FR 42641 (July 22, 2008) 

(‘‘proposal’’). 

5On July 26, 2007, the Commission approved a 

proposed rule change filed by NASD to amend 

NASD’s Certificate of Incorporation to reflect its 

name change to Financial Industry Regulatory 

Authority, Inc., or FINRA, in connection with the 

consolidation of the member firm regulatory 

functions of NASD and NYSE Regulation, Inc. See 

Securities Exchange Act Release No. 56146 (July 26, 

2007), 72 FR 42190 (August 1, 2007). The FINRA 

rule book currently consists of both NASD rules and 

certain NYSE Rules that FINRA has incorporated. 

6See Securities Exchange Act Release No. 56971 

(December 14, 2007), 72 FR 72804 (December 21, 

2007) (SR–CBOE–2007–106). 

(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–DTC–2008–08 in the 

subject line. 

Paper Comments 

• 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–DTC–2008–08. 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 

Section, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3:30 

p.m. Copies of such filings also will be 

available for inspection and copying at 

the principal office of the DTC and on 

the DTC’s Web site, http:// 

www.dtcc.com. 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–DTC–

2008–08 and should be submitted on or 

before September 23, 2008. For the 

Commission by the Division of Trading 

and Markets, pursuant to delegated 

authority.13

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–20249 Filed 8–29–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58410; File No. SR–Phlx–

2008–53] 

Self-Regulatory Organizations; 

Philadelphia Stock Exchange, Inc. 

(n/k/a NASDAQ OMX PHLX, Inc.); Order 

Granting Approval of Proposed Rule 

Change Relating to an Exchange 

Member’s Conduct of Doing Business 

With the Public 

August 22, 2008. 

I. Introduction 

On July 11, 2008, the Philadelphia 

Stock Exchange, Inc. (‘‘Phlx’’ or 

‘‘Exchange’’) (n/k/a NASDAQ OMX 

PHLX, Inc.) 1 filed with the Securities 

and Exchange Commission 

(‘‘Commission’’ or ‘‘SEC’’), pursuant to 

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

Exchange Act of 1934 (‘‘Act’’),2 and 

Rule 19b–4 thereunder,3 a proposed rule 

change relating to the Exchange’s rules 

governing doing business with the 

public. On July 16, 2008, the 

Commission issued a release noticing 

the proposed rule change, which was 

published for comment in the Federal 

Register on July 22, 2008.4 The 

Comment period expired on August 12, 

2008. The Commission did not receive 

any comment letters in response to the 

proposed rule change. This order 

approves the proposed rule change. 

II. Description of Phlx Proposal 

Phlx proposed to amend Phlx Rules 

1024 (Conduct of Accounts for Options 

Trading), 1025 (Supervision of 

Accounts), 1027 (Discretionary 

Accounts), and 1049 (Communications 

to Customers) that govern an Exchange 

member organizations’ conduct of doing 

business with the public. Specifically, 

the proposed rule change would require 

that member organizations integrate the 

responsibility for supervision of a 

member organizations’ public customer 

options business into their overall 

supervisory and compliance programs. 

In addition, the proposal would require 

a member organization to strengthen its 

supervisory procedures and internal 

controls as they relate to its public 

customer options business. 

A. Integration of Options Supervision 

The purpose of the proposed rule 

change is to create a supervisory 

structure for options that is similar to 

that required by New York Stock 

Exchange (‘‘NYSE’’) Rule 342 and 

National Association of Securities 

Dealers (‘‘NASD’’) Rule 3010.5 The 

proposed rule change would eliminate 

the requirement that member 

organizations qualified to do a public 

customer business in options must 

designate a single person to act as 

Senior Registered Options Principal 

(‘‘SROP’’) for the member organization 

and that each such member organization 

designate a specific individual as a 

Compliance Registered Options 

Principal (‘‘CROP’’). Instead member 

organizations would be required to 

integrate the SROP and CROP functions 

into their overall supervisory and 

compliance programs. The proposed 

rule change is substantively similar to 

recent amendments to the rules of the 

Chicago Board Options Exchange, Inc. 

(‘‘CBOE’’) which were approved by the 

Commission.6

The SROP concept was first 

introduced by Phlx and other options 

exchanges during the early years of the 

development of the listed options 

market. Initially, member organizations 

were required to designate one or more 

persons qualified as Registered Options 

Principals (‘‘ROPs’’) having supervisory 

responsibilities in respect of the 

member organization’s options business. 

As the number of ROPs at larger 

member organizations began to increase, 

Phlx imposed an additional requirement 

that member organizations designate 

one of their ROPs as the SROP. This was 

intended to eliminate confusion as to 

where the compliance and supervisory 

responsibilities lay by centralizing in a 

single supervisory officer overall 

responsibility for the supervision of a 


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Federal Register / Vol. 73, No. 170 / Tuesday, September 2, 2008 / Notices 51329 

7See Securities and Exchange Commission, 96th 

Cong., 1st Sess., Report of the Special Study of the 

Options Markets (Comm. Print 1978) 316 fn. 11 

(‘‘Options Study’’). 

8 Id. at p. 335. 

9See proposed Phlx Rule 1027 (a)(i). 

10See proposed Phlx Rule 1024(c). 

11See proposed Commentaries .06 and .07 to Phlx 

Rule 1024. 

12See proposed Commentary .08 to Phlx Rule 

1024. 

13See proposed Phlx Rule 1025. 

14See proposed Phlx Rule 1027(a). 

15See e.g., NYSE Rule 408. 

16See proposed Phlx Rule 1027(a). 

17See proposed Phlx Rule 1025(g), which is 

modeled after NYSE Rule 342.30. 

18See proposed Phlx Rule 1025(h) which is 

modeled after NYSE Rule 354. 

member organization’s options 

activities.7 Subsequently, following the 

recommendation of the Commission’s 

Options Study, Phlx and other options 

exchanges required member 

organizations to designate a CROP to be 

responsible for the member 

organization’s overall compliance 

program in respect of its options 

activities.8 The CROP may be the same 

person who is designated as SROP. 

Since the SROP and CROP 

requirements were first imposed, the 

supervisory function in respect of the 

options activities of most securities 

firms has been integrated into the matrix 

of supervisory and compliance 

functions in respect of the firms’ other 

securities activities. This not only 

reflects the maturity of the options 

market, but also recognizes the ways in 

which the uses of options themselves 

have become more integrated with other 

securities in the implementation of 

particular strategies. Thus, the current 

requirement for a separately designated 

senior supervisor in respect of all 

aspects of a member organization’s 

options activities, rather than clarifying 

the allocation of supervisory 

responsibilities within the member 

organization, may have just the opposite 

effect by failing to take into account the 

way in which these responsibilities are 

actually assigned. By permitting 

supervision of a member organization’s 

options activities to be handled in the 

same manner as the supervision of its 

other securities and futures activities, 

the proposed rule change will ensure 

that supervisory responsibility over 

each segment of the member 

organization’s business is assigned to 

the best qualified person in the member 

organization, thereby enhancing the 

overall quality of supervision. The same 

holds true for the compliance function. 

For example, member organizations 

generally designate one person to have 

supervisory responsibility over the 

application of margin requirements and 

other matters pertaining to the extension 

of credit. The proposed rule change 

would enable a member organization to 

include within the scope of such a 

person’s duties the supervision over the 

proper margining of options accounts, 

thereby assuring that the most qualified 

person is charged with this 

responsibility and at the same time 

eliminating any uncertainty that might 

now exist as to whether this 

responsibility lies with the senior credit 

supervisor or with the SROP. 

Similarly, the proposed rule change 

would allow a member organization to 

specifically designate one or more 

individuals as being responsible for 

approving a ROP’s acceptance of 

discretionary accounts 9 and exceptions 

to a member organization’s suitability 

standards for trading uncovered short 

options.10 The proposed rule changes 

would allow member organizations the 

flexibility to assign such 

responsibilities, which formerly rested 

with the SROP and/or CROP, to more 

than one ROP qualified individual 

where the member organization believes 

it advantageous to do so to enhance its 

supervisory or compliance structure. 

Typically, a member organization may 

wish to divide these functions on the 

basis of geographic region or functional 

considerations. Phlx Rule 1024 would 

be amended to clarify the qualification 

requirements of individuals designated 

as ROPs.11 Rule 1024 would also be 

amended to specify the registration 

requirements of individuals who accept 

orders from non-broker-dealer 

customers.12

The proposed rule change would call 

for options discretionary accounts, the 

acceptance of which must be approved 

by a ROP qualified individual (other 

than the ROP who accepted the 

account), to be supervised in the same 

manner as the supervision of other 

securities accounts that are handled on 

a discretionary basis.13 The proposed 

rule change would eliminate the 

requirement that discretionary options 

orders be approved on the day of entry 

by a ROP (with one exception as 

described below).14 This requirement 

predates the Options Study and is not 

consistent with the use of supervisory 

tools in computerized format or 

exception reports generated after the 

close of a trading day. No similar 

requirement exists for supervision of 

other securities accounts that are 

handled on a discretionary basis.15

Discretionary orders must be reviewed 

in accordance with a member 

organization’s written supervisory 

procedures. The proposed rule change 

would ensure that supervisory 

responsibilities are assigned to specific 

ROP qualified individuals, thereby 

enhancing the quality of supervision. 

Phlx Rule 1027 would be revised by 

adding, as Commentary .01, a 

requirement that any member 

organization that does not utilize 

computerized surveillance tools for the 

frequent and appropriate review of 

discretionary account activity must 

establish and implement procedures to 

require ROP qualified individuals who 

have been designated to review 

discretionary accounts to approve and 

initial each discretionary order on the 

day entered. The Exchange believes that 

any member organization that does not 

utilize computerized surveillance tools 

to monitor discretionary account 

activity should continue to be required 

to perform the daily manual review of 

discretionary orders. 

Under the proposed rule change, 

options discretionary accounts will 

continue to receive frequent appropriate 

supervisory review by designated ROP 

qualified individuals. Additionally, 

member organizations will continue to 

be required to designate ROP qualified 

individuals to review and approve the 

acceptance of options discretionary 

accounts in order to determine whether 

the ROP accepting the account had a 

reasonable basis for believing that the 

customer was able to understand and 

bear the risks of the proposed strategies 

or transactions.16 This requirement 

provides an additional level of 

supervisory audit over options 

discretionary accounts that does not 

exist for other securities discretionary 

accounts. 

In addition, the proposed rule change 

would require that each member 

organization submit to the Exchange a 

written report by April 1 of each year, 

that details the member organization’s 

supervision and compliance effort, 

including its options compliance 

program, during the preceding year and 

reports on the adequacy of the member 

organization’s ongoing compliance 

processes and procedures.17

Proposed Phlx Rule 1025(h) would 

require that each member organization 

submit, by April 1st of each year, a copy 

of the Phlx Rule 1025(g) annual report 

to one or more of its control persons or, 

if the member organization has no 

control person, to the audit committee 

of its board of directors or its equivalent 

committee or group.18

Proposed Phlx Rule 1025(g) would 

provide that a member organization that 


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51330 Federal Register / Vol. 73, No. 170 / Tuesday, September 2, 2008 / Notices 

19See proposed Phlx Rule 1025(a). 

20See proposed Commentary .02 to Phlx Rule 

1025. 

21See Securities Exchange Act Release Nos. 

49882 (June 17, 2004), 69 FR 35108 (June 23, 2004) 

(SR–NYSE–2002–36) and 49883 (June 17, 2004), 69 

FR 35092 (June 23, 2004) (SR–NASD–2002–162). 

22See proposed Phlx Rule 1025(a)(iii) which is 

modeled after NYSE Rule 342.19. 

23An ‘‘otherwise independent’’ person is defined 

in proposed Phlx Rule 1025(a)(iii)(A) as one who: 

May not report either directly or indirectly to the 

producing manager under review; must be situated 

in an office other than the office of the producing 

manager; must not otherwise have supervisory 

responsibility over the activity being reviewed; and 

must alternate such review responsibility with 

another qualified person every two years or less. 

Further, if a person designated to review a 

producing manager receives an override or other 

income derived from that producing manager’s 

customer activity that represents more than 10% of 

the designated person’s gross income derived from 

the member organization over the course of a rolling 

twelve-month period, the member organization 

must establish alternative senior or otherwise 

independent supervision of that producing manager 

to be conducted by a qualified Registered Options 

Principal other than the designated person 

receiving the income. 

24Paragraph 1025 (a)(iii)(D) of Phlx Rule 1025 

would provide that a member organization that 

complies with requirements of the NYSE or the 

NASD that are substantially similar to the 

requirements in Phlx Rules 1025 (a)(iii)(A), 

(a)(iii)(B) and (a)(iii)(C) will be deemed to have met 

such requirements. 

25Current Phlx Rule 1025(c) regarding 

designation of foreign currency options principals 

was renumbered as 1025(i). 

26See proposed Phlx Rule 1025(c)(i) which is 

modeled after NYSE Rule 342.23. Paragraph (c)(ii) 

of Phlx Rule 1025 would provide that a member 

organization that complies with requirements of the 

NYSE or the NASD that are substantially similar to 

the requirements in Phlx Rule 1025(c)(i) will be 

deemed to have met such requirements. 

27Proposed Phlx Rules 1025(d)(i)(A) and (B) 

would provide members with two exceptions from 

the annual branch office inspection requirement: A 

member may demonstrate to the satisfaction of the 

Exchange that other arrangements may satisfy the 

Rule’s requirements for a particular branch office, 

or based upon a member organization’s written 

policies and procedures providing for a systematic 

risk-based surveillance system, the member 

organization submits a proposal to the Exchange 

and receives, in writing, an exemption from this 

requirement pursuant to Phlx Rule 1025(e). 

specifically includes its options 

compliance program in a report that 

complies with substantially similar 

NYSE and NASD rule requirements will 

be deemed to have satisfied the 

requirements of Phlx Rules 1025(g) and 

1025(h). 

Although the proposed rule change 

would eliminate entirely the positions 

and titles of the SROP and CROP, 

member organizations would still be 

required to designate a single general 

partner or executive officer to assume 

overall authority and responsibility for 

internal supervision, control of the 

member organization and compliance 

with securities laws and regulations.19

Member organizations would also be 

required to designate specific qualified 

individuals as having supervisory or 

compliance responsibilities over each 

aspect of the member organization’s 

options activities and to set forth the 

names and titles of these individuals in 

their written supervisory procedures.20

This is consistent with the integration of 

options supervision into the overall 

supervisory and compliance structure of 

a member organization. In connection 

with the approval of these proposed rule 

changes, the Exchange intends to review 

member organizations’ written 

supervisory and compliance procedures 

in the course of the Exchange’s routine 

examination of member organizations to 

ensure that supervisory and compliance 

responsibilities are adequately defined. 

The Exchange believes that the 

proposed rule changes recognize that 

options are no longer in their infancy, 

have become more integrated with other 

securities in the implementation of 

particular strategies, and thus should 

not continue to be regulated as though 

they are new and experimental 

products. The Exchange believes that 

the proposed rule change is appropriate 

and would not materially alter the 

supervisory operations of member 

organizations. The Exchange believes 

the supervisory and compliance 

structure in place for non-options 

products at most member organizations 

is not materially different from the 

structure in place for options. 

B. Supervisory Procedures and Internal 

Controls 

The Exchange also proposed to amend 

certain rules to strengthen member and 

member organizations’ supervisory 

procedures and internal controls as they 

relate to the members’ public customer 

options business. The proposed rule 

changes described below are modeled 

after NYSE and NASD rules approved 

by the Commission in 2004.21 The 

Exchange believes the following 

proposal to strengthen member 

supervisory procedures and internal 

controls is appropriate and consistent 

with the preceding proposal to integrate 

options and non-options sales practice 

supervision and compliance functions. 

Phlx Rule 1025(a)(iii) would be 

revised to require the development and 

implementation of written policies and 

procedures reasonably designed to 

supervise sales managers and other 

supervisory personnel who service 

customer options accounts (i.e., who act 

in the capacity of a registered 

representative).22 This requirement 

would apply to branch office managers, 

sales managers, regional/district sales 

managers, or any person performing a 

similar supervisory function. Such 

policies and procedures are expected to 

encompass all options sales-related 

activities. Proposed Phlx Rule 

1025(a)(iii)(A) would require that 

supervisory reviews of producing sales 

managers be conducted by a qualified 

ROP who is either senior to, or 

otherwise ‘‘independent of’’, the 

producing manager under review.23

This provision is intended to ensure 

that all options sales activity of a 

producing manager is monitored for 

compliance with applicable regulatory 

requirements by persons who do not 

have a personal interest in such activity. 

Proposed Phlx Rule 1025(a)(iii)(B) 

would provide a limited exception for 

members so limited in size and 

resources that there is no qualified 

person senior to, or otherwise 

independent of, the producing manager 

to conduct the review. In this case, the 

reviews may be conducted by a 

qualified ROP to the extent practicable. 

Under proposed Phlx Rule 

1025(a)(iii)(C), a member relying on the 

limited size and resources exception 

must document the factors used to 

determine that compliance with each of 

the ‘‘senior’’ or ‘‘otherwise 

independent’’ standards of Phlx Rule 

1025(a)(iii)(A) is not possible, and that 

the required supervisory systems and 

procedures in place with respect to any 

producing manager comply with the 

provisions of Phlx Rule 1025(a)(iii)(A) 

to the extent practicable.24

Proposed Phlx Rule 1025(c)(i) would 

require member organizations to 

develop and maintain adequate controls 

over each of their business activities.25

The proposed rule would further require 

that such controls include the 

establishment of procedures to 

independently verify and test the 

supervisory systems and procedures for 

those business activities. Member 

organizations would be required to 

include in the annual report prepared 

pursuant to Phlx Rule 1025(g) a review 

of their efforts in this regard, including 

a summary of the tests conducted and 

significant exceptions identified. The 

Exchange believes proposed Phlx Rule 

1025(c)(i) would enhance the quality of 

member organizations’ supervision.26

Proposed Phlx Rule 1025(d) would 

establish requirements for branch office 

inspections similar to the requirements 

of NYSE Rule 342.24. Specifically, Phlx 

Rule 1025(d) would require a member 

organization to inspect, at least 

annually, each supervisory branch office 

and inspect each non-supervisory 

branch office at least once every three 

years.27 The proposed rule would 

further require that persons who 

conduct a member organization’s annual 


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Federal Register / Vol. 73, No. 170 / Tuesday, September 2, 2008 / Notices 51331 

28See proposed Phlx Rules 1025(e) and (f) which 

are modeled after NYSE Rules 342.25 and 342.26. 

29See proposed Phlx Rule 1025(g)(v) which is 

modeled after NASD Rule 3013 and NYSE Rule 

342.30(e). 

30See proposed Phlx Rule 1025(b)(ii) which is 

modeled after NASD Rule 3110(i). 

31See 17 CFR 240.17a–4. 

32See proposed Phlx Rule 1025(b)(iii) which is 

modeled after NASD Rule 3110(j). 

33See proposed Phlx Rule 1027(e) which is 

modeled after NASD Rule 2510(d)(1). 

34 In approving this rule change, the Commission 

notes that it has considered the proposed rule’s 

impact on efficiency, competition and capital 

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

35 15 U.S.C. 78f(b)(5). 

36 15 U.S.C. 78s(b)(2). 

37 17 CFR 200.30–3(a)(12). 

branch office inspection must be 

independent of the direct supervision or 

control of the branch office (i.e., not the 

branch office manager, or any person 

who directly or indirectly reports to 

such manager, or any person to whom 

such manager directly reports). The 

Exchange believes that requiring branch 

office inspections to be conducted by 

someone who has no significant 

financial interest in the success of a 

branch office should lead to more 

objective and vigorous inspections. 

Under proposed Phlx Rule 1025(e), 

any member organization seeking an 

exemption, pursuant to Phlx Rule 

1025(d)(ii), from the annual branch 

office inspection requirement would be 

required to submit to the Exchange 

written policies and procedures for 

systematic risk-based surveillance of its 

branch offices, as defined in Phlx Rule 

1025(e). Proposed Phlx Rule 1025(f) 

would require that annual branch office 

inspection programs include, at a 

minimum, testing and verification of 

specified internal controls.28 Paragraph 

(d)(3) of Phlx Rule 1025 would provide 

that a member organization that 

complies with requirements of the 

NYSE or the NASD that are 

substantially similar to the requirements 

in Phlx Rules 1025(d), (e) and (f) will be 

deemed to have met such requirements. 

In conjunction with the proposed 

changes to Phlx Rules 1025(d), (e) and 

(f), the Exchange proposes to add new 

Commentary .09 to Phlx Rule 1024 to 

define ‘‘branch office’’ in a way that is 

substantially similar to the definition of 

branch office in NYSE Rule 342.10. 

Proposed Phlx Rule 1024(g)(iv) would 

require a member organization to 

designate a Chief Compliance Officer 

(CCO). Proposed Phlx Rule 1025(g)(v) 

would require each member 

organization’s Chief Executive Officer 

(CEO), or equivalent, to certify annually 

per subsection (A) that the member 

organization has in place processes to: 

(1) Establish and maintain policies and 

procedures reasonably designed to 

achieve compliance with applicable 

Exchange rules and federal securities 

laws and regulations; (2) modify such 

policies and procedures as business, 

regulatory, and legislative changes and 

events dictate; and (3) test the 

effectiveness of such policies and 

procedures on a periodic basis, the 

timing of which is reasonably designed 

to ensure continuing compliance with 

Exchange rules and federal securities 

laws and regulations. 

Proposed Phlx Rule 1025(g)(v) would 

further require that the CEO attest the 

CEO has conducted one or more 

meetings with the CCO in the preceding 

12 months to discuss the compliance 

processes in proposed Phlx Rule 

1025(g)(v), that the CEO has consulted 

with the CCO and other officers to the 

extent necessary to attest to the 

statements in the certification, and the 

compliance processes are evidenced in 

a report, reviewed by the CEO, CCO, 

and such other officers as the member 

organization deems necessary to make 

the certification, that is provided to the 

member organization’s board of 

directors and audit committee (if such 

committee exists).29

Under proposed Phlx Rule 1025(b)(ii), 

a member, upon a customer’s written 

instructions, may hold mail for a 

customer who will not be at his or her 

usual address for no longer than two 

months if the customer is on vacation or 

traveling, or three months if the 

customer is going abroad. This 

provision would help ensure that 

members that hold mail for customers 

who are away from their usual 

addresses, do so only pursuant to the 

customer’s written instructions and for 

a specified, relatively short period of 

time.30

Proposed Phlx Rule 1025(b)(iii) would 

require that, before a customer’s options 

order is executed, the account name or 

designation must be placed upon the 

memorandum for each transaction. In 

addition, only a qualified ROP may 

approve any changes in account names 

or designations. The ROP also must 

document the essential facts relied upon 

in approving the changes and maintain 

the record in a central location. A 

member would be required to preserve 

any account designation change 

documentation for a period of not less 

than three years, with the 

documentation preserved for the first 

two years in an easily accessible place, 

as the term ‘‘easily accessible place’’ is 

used in Exchange Act Rule 17a–4.31 The 

Exchange believes the proposed rule 

would help to protect account name and 

designation information from possible 

fraudulent activity.32

Phlx Rule 1027(e) allows member 

organizations to exercise time and price 

discretion on orders for the purchase or 

sale of a definite number of options 

contracts in a specified security. The 

Exchange proposes to amend its Rule 

1027(e) to limit the duration of this 

discretionary authority to the day it is 

granted, absent written authorization to 

the contrary. In addition, the proposed 

rule would require any exercise of time 

and price discretion to be reflected on 

the customer order ticket. The proposed 

one-day limitation would not apply to 

time and price discretion exercised for 

orders effected with or for an 

institutional account (as defined in the 

rule) pursuant to valid Good-TillCancelled instructions issued on a ‘‘not 

held’’ basis. The Exchange believes that 

investors will receive greater protection 

by clarifying the time such discretionary 

orders remain pending.33

III. Discussion 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder.34 In particular, the 

Commission finds that the proposed 

rule change would integrate the 

supervision and compliance functions 

relating to member organizations’ public 

customer options activities into the 

overall supervisory structure of a 

member organization, thereby 

eliminating any uncertainty over where 

supervisory responsibility lies. In 

addition, the proposed rule change 

would foster the strengthening of 

members’ and member organizations’

internal controls and supervisory 

systems. As such, the Commission finds 

that the proposal is consistent with and 

furthers the objectives of Section 6(b)(5) 

of the Act,35 in that it is designed to 

promote just and equitable principles of 

trade, to prevent fraudulent and 

manipulative acts and practices, and in 

general, to protect investors and the 

public interest. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,36 that the 

proposed rule change (SR–Phlx–2008–

53), be and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.37

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–20228 Filed 8–29–08; 8:45 am] 

BILLING CODE 8010–01–P 


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