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###### Securities and Exchange Commission

          - [Release No. 34-59924; File No. SR-Phlx-2009-23]

                    On March 13, 2009, NASDAQ OMX PHLX, Inc. (“Phlx” or the “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) [1]                                          and Rule 19b-4 thereunder,[2]                                          a proposed rule change to amend its By-Laws, Rules of the Board of Governors, Options Rules, and Option Floor Procedure Advices to make changes to certain standing committees and governance processes of the Exchange. On March 25, 2009, Phlx filed Amendment No. 1 to the proposed rule change. The proposed rule change was published for comment in the                     **Federal Register**                     on April 9, 2009.[3]                                          On April 30, 2009, Phlx filed Amendment No. 2 to the proposed rule change.[4]                                          The Commission received no comments regarding the proposal. This order approves the proposed rule change, as modified by Amendment Nos. 1 and 2.                

                    In its filing, the Exchange proposes to conform its governance structure to more closely resemble that of its corporate siblings, The NASDAQ Stock Market LLC (“Nasdaq”) and NASDAQ OMX BX, Inc. (“BX”).[5]                                          In particular, Phlx proposes to eliminate the Admissions Committee and the Options Allocation, Evaluation and Securities Committee (“Allocation Committee”); consolidate the Options Committee and the Foreign Currency Options Committee into the Quality of Markets Committee; and eliminate the use of the Weekly Bulletin.[6]                                          Phlx also proposes to change the membership structure of the Business Conduct Committee and eliminate the Hearing Officer; make the Finance Committee optional at the discretion of the Board; and authorize the Board or its designee to take certain actions in the event of an emergency or extraordinary market conditions. Finally, the Exchange proposes technical changes that, among other things, delete obsolete references to departments and positions that have been re-named or no longer exist.                

                    Pursuant to this proposed rule change, the eleven current standing committees of the Board of Governors of the Exchange (“Board”) would be reduced to eight.[7]                                          Of those eight, the Finance Committee would become optional at the discretion of the Board.[8] 

                    The Commission has carefully reviewed the proposed rule change and finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange [9]                                          including, in particular, Section 6(b)(1) of the Act,[10]                                          which requires a national securities exchange to be so organized and have the capacity to carry out the purposes of the Act and to enforce compliance by its members and persons associated with its members with the provisions of the Act; Section 6(b)(3) of the Act,[11]                                          which requires that the rules of a national securities exchange assure a fair representation of its members in the selection of its directors and administration of its affairs, and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of the exchange, broker or dealer; and Section 6(b)(5) of the Act,[12]                                          which requires that an exchange have rules designed to prevent fraudulent and manipulative acts and practices, 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, protect investors and the public interest.                

                    The proposed rule change will conform certain of the By-Laws and rules of the Exchange to those of Nasdaq, while maintaining the fair representation of the Exchange's members in the administration of the affairs of the Exchange. Among other things, the Exchange proposes to eliminate the Admissions Committee, and to have the Phlx Membership Department perform the functions that are currently performed by the Admissions Committee. In this respect, the proposed change would reflect the practice at Nasdaq, which does not have an Admissions Committee and whose staff handles membership application                           ( print page 23760)                        processing and decisions regarding membership.[13]                                          As proposed, the Membership Department would assume responsibility for administering the admissions and membership processes currently overseen by that committee including, among other things, the admission, denial, reinstatement and revocation of membership to the Exchange.[14] 

                    An applicant for Exchange membership or admission whose application is not approved currently has a right to an appeal hearing pursuant to By-Law Article XI. The Exchange proposes to include the Membership Department in this By-Law in order to permit appeals from Membership Department decisions.[15]                                          Accordingly, the current appeal rights of applicants will be preserved.                

                    Similarly, the Exchange proposes to delete the Allocations Committee and have the Exchange's staff perform the duties and functions that are currently performed by the Allocation Committee.[16] 

                    In addition, the Exchange proposes to combine its Options Committee and Foreign Currency Options Committee, which are currently two separate Board committees, into the existing Quality of Markets Committee. The duties and functions of the Exchange's reformulated Quality of Markets Committee would be analogous to those of the Nasdaq's Quality of Markets Committee and would include, among other things, responsibility for advising the Board on issues relating to the fairness, integrity, efficiency, and competitiveness of the Exchange's market. The Quality of Markets Committee would include a number of Member Representative members that is equal to at least twenty percent of the total number of members of the Quality of Markets Committee.[17]                                          In addition, the number of Non-Industry members on the Quality of Markets Committee would equal the sum of the number of Industry members and Member Representative members. Accordingly, the proposed new formulation for the Quality of Markets Committee would continue to assure the fair representation of the Exchange's members on this committee.                

                    The Exchange also proposes to provide that the President of the Exchange, and his or her designated staff, would have general supervision over the options trading floor as well as general supervision over the dealings of members on the trading floor and on Exchange trading systems. The President would also be given responsibility regarding supervision of relations with other options exchanges. The Exchange notes that such authority is consistent with the practice at Nasdaq.[18]                                          Similarly, the Exchange proposes to adopt a By-Law provision similar to Nasdaq that authorizes the Board or its designee to take certain actions in the event of an emergency or extraordinary market conditions.[19] 

                    Further, the Exchange proposes to alter the composition of the Business Conduct Committee, which serves as the disciplinary committee of the Exchange. As amended, the Business Conduct Committee could consist of not less than five, or more than nine, members.[20]                                          In addition, the majority of committee members would be Non-Industry members, and the remaining committee members would be Industry members. At least one BCC member would have to be a member of the Exchange that conducts an options business at Phlx. The Exchange has informed the Commission that, upon approval, it initially intends to have five persons serve on the BCC.[21] 

In addition, the Exchange proposes to conform its hearings processes to more closely resemble those of Nasdaq. Specifically, the Exchange proposes to change the composition of its disciplinary hearing panel by deleting the requirement to have a presiding Hearing Officer. In its place, a new position of Hearing Attorney would be created to assume the administrative duties that the Hearing Officer previously handled. The Hearing Attorney would advise the Hearing Panel on applicable rules and procedures, but would not be a voting member of the Hearing Panel. The process of appealing Hearing Panel decisions would remain unchanged.

The Commission notes that the Exchange's proposal is designed to more closely align certain aspects of Phlx's governance structure and processes to more closely resemble that of Nasdaq, which, like the Exchange, is a subsidiary of NASDAQ OMX GROUP, Inc. As discussed above, the Commission finds that the proposal is consistent with the Act. In particular, the proposal should allow the Exchange to be so organized and have the capacity to carry out the purposes of the Act and to enforce compliance by its members and persons associated with its members with the provisions of the Act, and should continue to assure the fair representation of the Exchange's members in the administration of its affairs.

                    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-Phlx-2009-                          ( print page 23761)                        23), as modified by Amendment Nos. 1 and 2, be, and it hereby is, approved.                                    

                        For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22

Florence E. Harmon,

Deputy Secretary.

# Footnotes

1.                             15 U.S.C. 78s(b)(1).                    
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2.                             17 CFR 240.19b-4.                    
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3.                                                     *See*                         Securities Exchange Act Release No. 59697 (April 2, 2009), 74 FR 16249 (“Notice”).                    
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4.                             In Amendment No. 2, Phlx made technical and conforming changes to certain By-Laws, including changes to the paragraph numbering in Article I, Section 1-1 (Definitions) and revisions to the marking of new rule text in Article X, Sections 10-1 (Standing Committees) and 10-15 (Finance Committee). These changes were designed to reflect intervening amendments to those By-Laws proposed in a preceding Phlx filing (File No. SR-Phlx-2009-17) that were recently approved by the Commission.                         *See*                         Securities Exchange Act Release No. 59794 (April 20, 2009), 74 FR 18761 (April 24, 2009) (SR-Phlx-2009-17). Because Amendment No. 2 is technical in nature, the Commission is not required to publish it for comment.                    
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5.                             The Exchange, Nasdaq, and BX are subsidiaries of The NASDAQ OMX GROUP, Inc.                         *See*                         Securities Exchange Act Release No. 58179 (July 17, 2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31) (order approving changes to the Exchange's governing documents in connection with its acquisition by The NASDAQ OMX Group, Inc.).                    
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6.                             The Weekly Bulletin contained, among other things, notice of changes in permit holder and member organization status and applications. Currently, if the Admissions Committee votes favorably regarding a request by an applicant, Phlx posts his or her name in the Weekly Bulletin and on its Web site for seven days to invite readers to report information regarding applications and applicants. The Exchange proposes to eliminate the Weekly Bulletin and instead provide notification regarding membership approvals on its Web site.                    
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7.                             The remaining standing committees would be: Executive Committee, Audit Committee, Business Conduct Committee, Compensation Committee, Finance Committee, Nominating Committee, Member Nominating Committee, and Quality of Markets Committee.                         *See*                         Phlx By-Law Article X, Section 10-1.                         *See also*                         Amendment No. 2 (reflecting changes made by SR-Phlx-2009-17 to create the Nominating Committee and the Member Nominating Committee).                    
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8.                             The Exchange noted that Nasdaq's Finance Committee is also optional at the discretion of Nasdaq's board of directors.                         *See*                         Notice,                         *supra*                         note 3, at 74 FR 16254.                    
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9.                             In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).                    
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10.                             15 U.S.C. 78f(b)(1).                    
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11.                             15 U.S.C. 78f(b)(3).                    
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12.                             15 U.S.C. 78f(b)(5).                    
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13.                                                     *See*                         Notice, supra note 3, at note 13.                    
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14.                             According to the Exchange, its staff has been “involved in virtually all aspects of the Exchange's admissions and membership process,” including assisting the Admissions Committee in the performance of its duties.                         *See*                         Notice,                        *supra*                         note 3, at 74 FR 16250. To accomplish this transfer, the Exchange proposes to delete By-Law Article X, Section 10-6 (Admissions Committee) and transfer the duties and functions of that committee to the Membership Department in new Rule 900.1 (General Powers and Duties of Membership Department). In addition, Exchange proposes to delete By-Law Article XII, Section 12-5, which sets forth duties and functions of the Admissions Committee with respect to applications for permits and admission as a foreign currency options participant, and transfer those duties to the Membership Department in new Rule 900.2 (Membership Applications).                    
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15.                             Such appeals would be heard by a special committee of the Board composed of at least three governors, at least one of which would be an Independent Governor.                         *See*                         Phlx By-Law Article XI, Section 11-1(c). Designated Independent Governors are selected through a process that is subject to the input of Phlx's Member Organization Representatives.                         *See*                         Phlx By-Law Article III, Section 3-2 (Member Nominating Committee creates a list of candidates for each Designated Governor Position); see also Article I, Section 1-1(e) (Designated Governors include Designated Independent Governors).                    
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16.                             The Exchange notes that Nasdaq does have a board of directors committee that is equivalent to the Allocation Committee.                         *See*                         Notice,                         *supra*                         note 3, at note 20.                    
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17.                             A Member Representative Member is “a member of any committee appointed by the Board of Governors who has been elected or appointed after having been nominated by the Member Nominating Committee.”                         *See*                         Phlx By-Law Article I, Section 1-1.                    
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18.                                                     *See*                         Notice,                         *supra*                         note 3, at note 29.                    
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19.                                                     *See*                         Proposed Phlx By-Law Article IV, Section 4-23.                         *See also*                         Nasdaq By-Law Article IX, Section 5. In addition, the Exchange currently has other extraordinary market conditions provisions in its rules.                         *See*                         Rules 1080(e) and 98.                    
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20.                             The BCC currently consists of nine members including three Independent Governors, one member or person associated with a member organization who conducts business on XLE (Phlx's electronic equity trading system), one member who conducts an options business at the Exchange, and four persons who are members or persons associated with a member organization. In particular, the Exchange poses to eliminate the requirement to seat on the BCC one member or person associated with a member organization who conducts business on XLE, because XLE is no longer operating.                         *See*                         Notice,                         *supra*                         note 3, at note 34.                    
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21.                                                     *See*                         E-mail from Jurij Trypupenko, Assistant General Counsel, The NASDAQ OMX Group, Inc., to Richard Holley III, Senior Special Counsel, Division of Trading and Markets, Commission, dated May 14, 2009. Phlx has committed to submit a separate proposed rule change by its July 2009 Board meeting to clarify in Article X, Section 10-11 that the Business Conduct Committee shall include a number of committee members equal to at least 20% of the total number of members on the Business Conduct Committee that are representative of Phlx members. This provision would be relevant only in the event that the Exchange chose to appoint six or more members to the BCC, since with a five member BCC the required appointment of “at least one” committee member who is a member of the Exchange that conducts an options business at Phlx would satisfy the 20% requirement.                    
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22.                             17 CFR 200.30-3(a)(12).                    
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[FR Doc. E9-11739 Filed 5-19-09; 8:45 am]

BILLING CODE 8010-01-P