Federal Register / Vol. 82, No. 215 / Wednesday, November 8, 2017 / Notices 51887 

16 15 U.S.C. 78s(b)(3)(A)(ii). 17 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Exchange Act Release No. 81642 (Sept. 18, 

2017), 82 FR 44481 (Sept. 22, 2017) (‘‘Notice’’). 

4The subsequent description of the proposed rule 

changes is substantially excerpted from the 

Exchange’s description in the Notice. See Notice, 82 

FR 44481–83. 

5See Rule 612(d). 

does not impose an undue burden on 

intra-market competition. All NOM 

Participants are eligible to qualify for a 

MARS Payment, provided they have 

System Eligibility, and all NOM 

Participants may be eligible for a Penny 

Pilot Options Customer and/or 

Professional Rebate to Add Liquidity 

provided they execute qualifying 

volume. All NOM Participants are 

eligible to qualify for the note ‘‘d’’ 

incentive provided the requisite 

requirements are met. The Exchange 

would uniformly pay the additional 

note ‘‘d’’ incentive to all qualifying 

NOM Participants. 

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 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act.16

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: (i) Necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) 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 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2017–116 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2017–116. 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 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2017–116 and 

should be submitted on or before 

November 29, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–24251 Filed 11–7–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82005; File No. SR–PHLX– 

2017–055] 

Self-Regulatory Organizations; 

NASDAQ PHLX LLC; Order Approving 

Proposed Rule Changes To Amend 

Rules 1024, Conduct of Accounts for 

Options Trading, and 1025, 

Supervision of Accounts 

November 2, 2017. 

I. Introduction 

On September 7, 2017, NASDAQ 

PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Exchange 

Act’’) 1 and Rule 19b–4 thereunder,2

proposed rule changes to amend Phlx 

Rules 1024 (Conduct of Accounts for 

Options Trading) and 1025 (Supervision 

of Accounts) to conform them more 

closely to the comparable rules of the 

Chicago Board Options Exchange 

(‘‘CBOE’’) and to make minor 

clarifications and corrections to the text. 

The proposed rule changes were 

published for comment in the Federal 

Register on September 22, 2017.3 The 

public comment period closed on 

October 13, 2017. The Commission 

received no comments on the proposed 

rule changes. This order approves the 

proposed rule changes. 

II. Description of the Proposed Rule 

Changes 4

Rules 1024 and 1025 contain 

regulatory requirements generally 

applicable to Phlx members and 

member organizations that conduct a 

public customer options business. The 

Exchange is proposing changes to 

certain sections of those rules to clarify 

the language and to correct inaccuracies. 

The Exchange also proposes to change 

certain rule language to conform the 

rules more closely to CBOE rules 

dealing with the same subject matter, in 

order to prevent inadvertent 

misunderstandings of the rules’ 

requirements. These rule changes are 

intended to promote more effective 

regulatory compliance by Exchange 

members and member organizations. 

The proposed changes are detailed 

below. 

Rule 1024(a)(i) 

Rule 1024(a)(i) governs registration of 

Options Principals.5 The rule currently 

provides that no member or member 

organization or individual associated 

with a member organization shall be 

approved to transact options business 

with the public until such persons, who 

are designated as Options Principals, 

have been approved by and registered 

with the Exchange. Additionally, it 

provides that persons engaged in the 

supervision of options sales practice or 

a person to whom the designated 

general partner or executive officer 


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6 Id. 

(pursuant to Rule 1025) or another 

Registered Options Principal 6 delegates 

the authority to supervise options sales 

practices shall be designated as Options 

Principals. Finally, the rule states that 

all members and member organizations 

must use Web CRD to submit Form U4, 

Uniform Application for Securities 

Industry Registration or Transfer filings 

on behalf of their Options Principals. 

Members and member organizations are 

required under the rule to amend Form 

U4 filings not later than thirty (30) days 

after the filer knew or should have 

known of the facts which gave rise to 

the amendment. 

The Exchange is proposing to amend 

Rule 1024(a)(i) by adopting language 

requiring Options Principals to 

electronically file a Uniform 

Application for Securities Industry 

Registration or Transfer (Form U4) with 

Web CRD, to successfully complete an 

examination prescribed by the Exchange 

and specified in Rule 1024 for the 

purpose of demonstrating an adequate 

knowledge of the options business and 

of the Rules of the Exchange, and to 

further agree in the U4 filing to abide by 

the Bylaws and Rules of the Exchange 

and the Rules of The Options Clearing 

Corporation. The Exchange is proposing 

to remove the sentence that requires 

members and member organizations to 

amend Form U4 filings not later than 

thirty (30) days after the filer knew or 

should have known of the facts which 

gave rise to the amendment. However, 

the Exchange proposes to add language 

requiring members and member 

organizations that are required to 

complete Form U4 to promptly (but in 

any event no later than 30 days after the 

filer knew or should have known of the 

facts which gave rise to the need for the 

amendment) electronically file any 

required amendments to Form U4 with 

Web CRD. Additionally, new language 

is proposed that would require 

termination of employment or affiliation 

of any Registered Options Principal in 

such capacity to be promptly, but in any 

event no later than 30 days following 

the termination, electronically reported 

to Web CRD together with a brief 

statement of the reason for such 

termination on Form U5. The 

amendment would conform Rule 

1024(a) more closely to CBOE Rule 9.2. 

The proposal would also correct a 

reference in the second sentence to 

‘‘options sale practice,’’ substituting for 

that term ‘‘options sales practices.’’ 

Rule 1024(b)(ii) 

Rule 1024(b)(ii) generally provides 

that, in approving a customer’s account 

for options transactions, a member or 

member organization shall exercise due 

diligence to learn the essential facts as 

to the customer and his investment 

objectives and financial situation, and 

shall make a record of such information. 

It also provides for approval and for 

confirmation of approval of the 

customer’s account by a Registered 

Options Principal qualified individual. 

For purposes of clarity, the Exchange 

proposes to eliminate references in Rule 

1024(b)(ii) to a ‘‘specific’’ or ‘‘specified’’ 

Registered Options Principal. It also 

proposes to delete the words ‘‘qualified 

individual’’ as they appear following 

references to Registered Options 

Principals to eliminate any ambiguity, 

as it is not clear what a Registered 

Options Principal qualified individual 

means if not a Registered Options 

Principal. Finally, the Exchange 

proposes to relocate the phrase ‘‘within 

a reasonable period of time’’ simply to 

conform the rule in this respect more 

closely to CBOE Rule 9.7. 

Rule 1024(c)(v) 

Rule 1024(c)(v) is proposed to be 

amended by changing an inaccurate 

internal cross reference, from Rule 

1029(c) to Rule 1029(b). 

Rule 1024 Commentary .01 Section 8 

The Exchange is proposing to delete 

the word ‘‘other’’ as unnecessary and to 

correct the placement of a closing 

parenthesis, moving it from after the 

word ‘‘transactions’’ to after the word 

‘‘commodities.’’ 

Rule 1024 Commentary .03 

The Exchange is proposing to add the 

inadvertently omitted word ‘‘an’’ before 

the word ‘‘opportunity.’’ 

Rule 1024 Commentary .06 

The Exchange is proposing to reword 

the sentence for clarity, so that it states 

that individuals engaged in the 

supervision of options sales practices 

are required to be designated as Options 

Principals and are required to qualify as 

an Options Principal by passing one of 

the examinations referred to in the rule. 

The Exchange also proposes to amend 

the rule’s reference to the Series 9/10 

examination, in order to use the same 

name that the Financial Industry 

Regulatory Authority (‘‘FINRA’’) uses 

for that examination. 

Rule 1024 Commentary .07 

The Exchange proposes to add the 

inadvertently dropped word 

‘‘reviewing’’ to a sentence that requires 

individuals who are delegated 

responsibility for reviewing, among 

other things, the acceptance of 

discretionary accounts, to be designated 

as Options Principals and pass the 

Series 4 examination. 

Rule 1025(a)(iii)A 

The Exchange proposes to substitute 

the word ‘‘responsibility’’ for the word 

‘‘responsibilities’’ simply to conform the 

rule more closely to CBOE Rule 

9.8(a)(3)(i). 

Rule 1025(b)(i) 

The Exchange proposes to make nonsubstantive wording changes to conform 

the rule language more closely to that of 

CBOE Rule 9.8(b)(1) by removing the 

unnecessary words ‘‘above-noted,’’ by 

replacing the words ‘‘requirements 

applicable to’’ with the words 

‘‘responsibility of,’’ by deleting the 

unnecessary words ‘‘however, the,’’ and 

by replacing the words ‘‘other than the 

principal supervisory office if such 

documents and information’’ with the 

words ‘‘off premises so long as the 

records.’’ 

Rule 1025(b)(iii) 

The Exchange proposes to capitalize 

the word ‘‘Rule’’ in a reference to SEC 

Rule 17a–4, to conform the language 

more closely to CBOE Rule 9.8(b)(3). 

Rule 1025(b) Concluding Sentence 

The words ‘‘any person’’ are proposed 

to be substituted for the words ‘‘a 

person’’, and an inaccurate reference to 

‘‘this paragraph (b)(3)’’ is proposed to be 

corrected to read ‘‘this paragraph 

(b)(iii).’’ 

Rule 1025(d) 

An extraneous word ‘‘the’’ is 

proposed to be deleted before the word 

‘‘proximity’’ to conform more closely to 

CBOE Rule 9.8(d)(1)(i), and an 

inaccurate reference to Rule 1025(c) is 

proposed to be corrected to read Rule 

1025(e). 

Rule 1025(e) 

The Exchange proposes to remove an 

extraneous comma to conform the rule 

more closely to CBOE Rule 9.8(e)(1) and 

to change an incorrect internal cross 

reference from paragraph (e)(1) to 

paragraph (e)(i). 

Rule 1025(g) 

Currently, Rule 1025(g) requires each 

member organization that conducts a 

non-member customer business to 

submit each year to the Exchange a 

written report on the member 

organization’s supervision and 

compliance effort during the preceding 

year. The Exchange proposes to expand 

the requirement to conform it more 

closely to CBOE Rule 9.8(g), by 


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Federal Register / Vol. 82, No. 215 / Wednesday, November 8, 2017 / Notices 51889 

7 In approving these rule changes, the 

Commission has considered the rule’s impact on 

efficiency, competition, and capital formation. See 

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

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

9See Notice, 82 FR at 44483. 

10See id. 

11See id. 

12 15 U.S.C. 78s(b)(2). 

13 17 CFR 200.30–3(a)(12). 

specifying that the report must also 

detail the adequacy of the member 

organization’s ongoing compliance 

processes and procedures. The proposed 

amendments to Rule 1025(g) would also 

require the Chief Executive Officer (or 

equivalent) to certify that the member 

organization has in place processes to 

test the effectiveness of policies and 

procedures on a periodic, rather than on 

a regular, basis. This change would 

conform the Exchange’s requirement 

more closely to the comparable CBOE 

Rule 9.8(g)5(i)(C) requirement. The 

proposal would also correct the spelling 

of the word ‘‘preceding’’ in Rule 

1025(g)(ii), add missing semicolons to 

an itemized list found in Rule 

1025(g)(iii), correct inaccurate internal 

cross references in Rules 1025(g)(v)(C) 

and (D), as well as correct the placement 

of a closing parenthesis in Rule 

1025(g)(v)(C). Finally, it would replace 

the awkward phrase ‘‘this requirement 

of this Rule’’ with ‘‘the requirements of 

this Rule.’’ 

Rule 1025(h) 

Rule 1025(h) currently provides that 

each member organization shall submit 

the report required by Rule 1024(g) to its 

one or more 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. The Exchange 

proposes to replace the inaccurate 

reference to Rule 1024(g) with a correct 

reference to Rule 1025(g). The Exchange 

proposes to add language to the end of 

the rule to establish the meaning of 

‘‘control person,’’ proposed to be 

defined as a person who controls the 

member organization. The new language 

would define the term ‘‘control’’ as 

meaning the power to exercise a 

controlling influence over the 

management or policies of the member 

organization, unless such power is 

solely the result of an official position 

with the member organization. Finally, 

the new language would state that any 

person who owns beneficially, directly 

or indirectly, more than 20% of the 

voting power in the election of directors 

of the member organization, or more 

than 25% of the voting power in the 

election of directors of any other 

corporation which directly or through 

one or more affiliates owns beneficially 

more than 25% of the voting power in 

the election of directors of the member 

organization, shall be presumed to 

control the member organization. The 

proposed new language is based on 

CBOE Rules 9.8(h) and 1.1(k), which is 

incorporated by reference into CBOE 

Rule 9.8(h). 

Rule 1025 Commentary .02 and .03 

Rule 1025 Commentary .02 is 

proposed to be amended by deleting the 

introductory phrase ‘‘In meeting their 

supervisory responsibilities’’ in order to 

conform the language more closely to 

CBOE Rule 9.8, Interpretations and 

Policies .01. The rule currently requires 

member organizations conducting a 

non-member customer business to 

enforce written procedures governing 

the conduct of options accounts. As 

revised, the written procedures would 

be required to detail the specific 

methods used to supervise all nonmember customer accounts and all 

orders in such accounts. This 

amendment would also provide greater 

clarity regarding the required content of 

the procedures and also would conform 

the rule more closely to CBOE Rule 9.8, 

Interpretations and Policies .01. The last 

sentence of Commentary .02 would be 

revised by replacing the phrase ‘‘short 

uncovered’’ options positions with the 

phrase ‘‘uncovered short’’ options 

positions. Finally, the Exchange 

proposes to amend Rule 1025 

Commentary .03 by adding the word 

‘‘shall’’ to the first sentence, to conform 

the language more closely to CBOE Rule 

9.8, Interpretations and Policies .02. 

IV. Discussion and Commission 

Findings 

After careful review of the proposed 

rule changes, the Commission finds that 

the proposal is consistent with the 

requirements of the Exchange Act and 

the rules and regulations thereunder 

that are applicable to a national 

securities exchange.7 Specifically, the 

Commission finds that the proposed 

rule changes are consistent with Section 

6(b)(5) of the Exchange Act,8 which 

requires, among other things, that the 

rules of a national securities exchange 

be 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, to protect 

investors and the public interest. 

Section 6(b)(5) also requires that the 

rules of an exchange not be designed to 

permit unfair discrimination among 

customers, issuers, brokers, or dealers. 

The proposal is designed to ‘‘remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, by 

correcting various aspects of the rules 

and by adding additional clarity to the 

rules.’’ 9 The Commission notes that 

Phlx believes that conforming its rules 

regarding conduct of accounts for 

options trading and supervision of 

accounts more closely to the 

corresponding CBOE rules will create 

‘‘more efficient regulatory compliance 

by members of both exchanges due to 

reduction of differences in wording and 

consequent potential for inadvertent 

regulatory noncompliance.’’ 10 The 

Commission further notes that Phlx 

believes that the minor corrections and 

clarifications of the rules in the proposal 

will ‘‘improve the accuracy of the rules’’ 

and ‘‘improve their readability, making 

them more understandable and thereby 

facilitating easier compliance.’’ 11 The 

Commission notes that the proposal 

received no comments from the public. 

The Commission believes that the 

proposal will promote regulatory 

efficiency through more precise rule text 

and greater harmonization of regulatory 

requirements across national securities 

exchanges, thereby reducing regulatory 

burdens, without undermining strong 

regulatory protections for investors. The 

Commission believes that the approach 

proposed by the Exchange is 

appropriate and designed to protect 

investors and the public interest, 

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

Exchange Act. For these reasons, the 

Commission finds that the proposed 

rule changes are consistent with the 

Exchange Act and the rules and 

regulations thereunder. 

V. Conclusion 

It is therefore ordered pursuant to 

Section 19(b)(2) 12 of the Exchange Act 

that the proposal (SR–PHLX–2017–055), 

be and hereby is approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–24256 Filed 11–7–17; 8:45 am] 

BILLING CODE 8011–01–P 


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