Federal Register / Vol. 82, No. 220 / Thursday, November 16, 2017 / Notices 53543 

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

2 17 CFR 240.19b–4. 

3An ‘‘accommodation’’ or ‘‘cabinet’’ trade refers 

to trades in listed options on the Exchange that are 

worthless or not actively traded, often times 

conducted to establish tax losses. Cabinet or 

accommodation trading of option contracts is 

intended to accommodate persons wishing to effect 

closing transactions in those series of options dealt 

in on the Exchange for which there is no auction 

market. A cabinet trade is a transaction in which 

the per-contract value of the cabinet trade is less 

than the per-contract value of a trade at the 

specified minimum increment for the option 

contract. 

4Rule 1059(b) provides that any (i) member, (ii) 

member organization, or (iii) other person who is 

a non-member broker or dealer and who directly or 

indirectly controlled, is controlled by, or is under 

common control with, a member or member 

organization (any such other person being referred 

to as an affiliated person) may effect any transaction 

as principal in the over-the-counter market in any 

class of option contracts listed on the Exchange for 

a premium not in excess of $1.00 per contract. The 

Exchange is proposing no changes to Rule 1059(b). 

The Commentary to Rule 1059 describes an existing 

pilot program to allow transactions to take place in 

open outcry at a price of at least $0 but less than 

$1 per option contract. These lower priced 

transactions are traded pursuant to the same 

procedures applicable to $1 cabinet trades, except 

that pursuant to the pilot program (i) bids and offers 

for opening transactions are only permitted to 

accommodate closing transactions in order to limit 

use of the procedure to liquidations of existing 

positions, and (ii) the procedures are also made 

available for trading in options participating in the 

Penny Pilot Program. The pilot program is in effect 

until January 5, 2018, and the Exchange intends to 

file a proposed rule change to make the pilot 

program permanent before that date. The Exchange 

is proposing no changes to the Rule 1059 

Commentary or the pilot program at this time. 

5 In May 2009, the Exchange enhanced the 

options trading system and adopted corresponding 

rules referring to it as ‘‘Phlx XL II.’’ See Securities 

Exchange Act Release No. 59995 (May 28, 2009), 74 

FR 26750 (June 3, 2009) (SR–Phlx–2009–32). 

Thereafter, the Exchange submitted a number of 

filings updating various rules and deleting obsolete 

provisions. See Securities Exchange Act Release 

Nos. 61397 (January 22, 2010), 75 FR 4893 (January 

29, 2010) (SR–Phlx–2010–07); 63036 (October 4, 

2010), 75 FR 62621 (October 12, 2010) (SR–Phlx– 

2010–131); and 67469 (July 19, 2012), 77 FR 43633 

(July 25, 2012) (SR–Phlx–2012–92). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82045; File No. SR–Phlx– 

2017–87] 

Self-Regulatory Organizations; Nasdaq 

PHLX LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Rule 1059, 

Accommodation Transactions 

November 9, 2017. 

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 

26, 2017, Nasdaq PHLX LLC (‘‘Phlx’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III, below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Rule 1059, Accommodation 

Transactions. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://nasdaqphlx.cchwallstreet.com/ 

, 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 amend 

Rule 1059, Accommodation 

Transactions, which provides for 

cabinet trading 3 and is sometimes 

referred to as the ‘‘cabinet rule,’’ to 

delete outdated language in Rule 

1059(a) relating to the role of specialists 

in cabinet trading, and to add to Rule 

1059(a) a description of procedures that 

are currently followed in cabinet trading 

on the Exchange’s trading floor, to 

reflect actual practice. 

Exchange Rule 1059, Accommodation 

Transactions, sets forth specific 

procedures for engaging in cabinet 

trades. Rule 1059(a) currently provides 

that the specialist registered in each 

class of option contracts shall supervise 

the operation of the cabinet for that 

class, and that all orders placed in the 

cabinet are assigned priority based upon 

the sequence in which such orders are 

received by the specialist. It states that 

all closing bids and offers are to be 

submitted to the specialist in writing, 

and that the specialist effects all closing 

cabinet transactions by matching such 

orders placed with him. The rule 

provides that bids or offers on orders to 

open for the accounts of customer, firm, 

specialists and Registered Options 

Traders (‘‘ROTs’’) can be made at $1 per 

option contract, but that such orders 

cannot be placed in, and must yield to, 

all orders in the cabinet. Rule 1059(a) 

currently states that specialists shall 

effect all cabinet transactions by 

matching closing purchase or sale 

orders which are placed in the cabinet 

or, provided there is no matching 

closing purchase or sale order in the 

cabinet, by matching a closing purchase 

or sale order in the cabinet with an 

opening purchase or sale order. The rule 

states that all cabinet transactions are to 

be reported to the Exchange following 

the close of each business day.4

Rule 1059(a), which prescribes the 

roles described above for the specialist 

in executing cabinet trades, is 

inconsistent with procedures currently 

followed in the execution of these 

trades. Because remote trading has 

become common in recent years, such 

that specialists are no longer present on 

the trading floor in all options, the 

procedures used to execute cabinet 

trades have evolved. Additionally, with 

the migration of the Exchange to a new 

electronic trading system (‘‘Phlx XL II’’) 

in 2009, the role of the Exchange 

specialist changed.5 Specialists no 

longer handle orders for other market 

participants in their capacity as 

specialists under the Exchange’s rules 

for electronic trading. 

Accordingly, the Exchange proposes 

to delete a number of provisions of Rule 

1059(a) which presume the 

participation of a specialist in every 

cabinet trade. First, the Exchange 

proposes to delete Rule 1059(a)(ii) 

which states that the specialist shall 

supervise the operation of the cabinet 

for that class, as well as the requirement 

in Rule 1059(a)(iii) that only closing 

limit orders at a price of $1 per option 

contract for the accounts of customer, 

firm, specialists and ROTs may be 

placed in the cabinet and that such 

orders be submitted to the specialist in 

writing. Next, it proposes to delete Rule 

1059(a)(iv) dealing with the priority of 

orders received by the specialist and 

Rule 1059(a)(v), which states that all 

closing bids and offers must be 

submitted to the specialist in writing, 

and that the specialist shall effect all 

closing cabinet transactions by matching 

such orders placed with him. The 

provision in Rule 1059(a)(v) stating that 

bids or offers on orders to open for the 

accounts of customer, firm, specialists 

and ROTs may be made at $1 per option 


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53544 Federal Register / Vol. 82, No. 220 / Thursday, November 16, 2017 / Notices 

6Rule 1063(e)(i) provides for the use on the 

trading floor of the Options Floor Broker 

Management System. The proposed new language 

is consistent with Rule 1000(f)(iii)(B), which 

currently states that Floor Brokers can execute 

cabinet trades in the options trading crowd 

pursuant to Rule 1059, rather than by using the 

Floor Broker Management System. See Securities 

Exchange Act Release No. 69471 (April 29, 2013), 

78 FR 26096 (May 3, 2013) (Order Approving 

Proposed Rule Change To Enhance the 

Functionality Offered on the Options Floor Broker 

Management System (‘‘FBMS’’) by, Among Other 

Things, Automating Functions Currently Performed 

by Floor Brokers), at footnote 9. 

contract, but that such orders may not 

be placed in and must yield to all orders 

in the cabinet, is also proposed to be 

deleted. Finally, the Exchange proposes 

to delete Rule 1059(a)(vi) which states 

that specialists shall effect all cabinet 

transactions by matching closing 

purchase or sale orders which have been 

placed in the cabinet or, provided there 

is no matching closing purchase or sale 

order in the cabinet, by matching a 

closing purchase or sale order in the 

cabinet with an opening purchase or 

sale order. 

The Exchange proposes to reorganize 

the rule for clarity and to add new 

language setting forth procedures that 

are currently followed on the trading 

floor to execute cabinet orders under 

Rule 1059. Rule 1059(a) would be 

revised to define the term ‘‘cabinet 

order’’ as a closing limit order at a price 

of $1 per option contract for the account 

of a customer, firm, specialist or ROT. 

This new definition is consistent with 

current Rule 1059(a)(iii) which, while 

not a definition, provides that only 

closing limit orders at a price of $1 per 

option contract for the accounts of 

customer, firm, specialists and ROTs 

may be placed in the cabinet. Rule 

1059(a) would also specify that an 

opening order is not a ‘‘cabinet order’’ 

but may in certain cases be matched 

with a cabinet order pursuant to 

subsection (a)(iii) (as proposed to be 

amended). The rule would specify that 

only Floor Brokers may represent 

cabinet orders. 

New Rule 1059(a)(ii) would be added, 

to provide that cabinet orders may be 

submitted to Floor Brokers and 

represented by them in the designated 

trading crowd of the option class and 

that Floor Brokers must use the 

designated cabinet transaction forms 

provided by the Exchange to document 

receipt of a cabinet order and the 

execution of a cabinet transaction. The 

new language would specify that Rule 

1063(e)(i) shall not apply to orders 

placed in the cabinet or executed in the 

cabinet.6

The Exchange proposes to add new 

Rule 1059(a)(iii), which specifies the 

procedures to be followed by the Floor 

Broker and other trading crowd 

participants to execute cabinet orders in 

three different scenarios. In each case, 

the Floor Broker would be required to 

act in the presence of at least one 

market-maker and NASDAQ Market 

Regulation Floor Surveillance. 

Rule 1059(a)(iii)(A) governs cases 

where a Floor Broker holds a cabinet 

order but does not also hold contra-side 

interest. In that case, the Floor Broker 

shall announce the terms of the cabinet 

order to the trading crowd to solicit 

interest to participate on the closing 

position. All matching cabinet orders 

shall be assigned priority based upon 

the sequence in which such orders are 

received by the Floor Broker. If there is 

no matching cabinet order, the Floor 

Broker may match the cabinet order 

with a matching opening buy or sell 

limit order priced at $1 per option 

contract. If there is no matching cabinet 

order or opening order, the Floor Broker 

may seek matching bids or offers for 

accounts of specialists and ROTs. 

Specialists and ROTs can only 

participate after all other orders have 

been matched. 

Rule 1059(a)(iii)(B) governs cases 

where a Floor Broker holds a cabinet 

order and also a contra-side cabinet 

order. In that situation, the rule would 

require the Floor Broker to announce 

the terms of the cabinet orders to the 

trading crowd. The cabinet orders shall 

then be immediately crossed by the 

Floor Broker. 

Finally, Rule 1059(a)(iii)(C) applies 

where a Floor Broker holds both a 

cabinet order and a contra-side opening 

order. In that situation, the Floor Broker 

is required to announce the terms of the 

cabinet order to the trading crowd. If 

there is a matching cabinet order, the 

Floor Broker shall match the two 

cabinet orders. If there is no matching 

cabinet order, the cabinet order shall 

then be immediately crossed by the 

Floor Broker with the opening order 

held by the Floor Broker. 

The proposed amendments describing 

the updated cabinet trading procedures 

will change the current cabinet priority 

rules in some respects. Currently, 

specialists match all orders represented 

by all floor brokers on the floor, based 

first on time, then on opening vs. 

closing. The specialist is required to 

assign priority to all orders placed in the 

cabinet based upon the sequence in 

which such orders are received by the 

specialist. The specialist is then to 

match cabinet orders first against 

matching cabinet orders, and second, if 

there is no matching cabinet order, 

against a matching opening order. 

The proposed priority rules focus on 

the cabinet order at the time it is 

represented by a floor broker in the 

trading crowd. Thus, as proposed, each 

floor broker holding a cabinet order only 

would be required to assign priority to 

cabinet orders he holds based upon the 

sequence in which he receives such 

orders, consistent with the current rule’s 

requirement for specialists, but would 

not be required to cede priority to a 

cabinet order represented in the crowd 

at an earlier time by another Floor 

Broker. 

The floor broker is then to assign 

matching cabinet orders from the crowd 

based upon the sequence in which the 

orders are received by that floor broker 

representing such order. For example, 

the ‘‘Floor Broker A’’ receives a cabinet 

order to buy 500 contracts and 

represents to the trading crowd. At the 

time of representation to the crowd, 

‘‘Floor Broker B’’ has a matching cabinet 

order for 250 contracts and ‘‘Floor 

Broker C’’ enters the trading crowd after 

‘‘Floor Broker B’’ with a matching 

cabinet order for 500 contracts. ‘‘Floor 

Broker A’’ then proceeds to match his 

500 contracts to buy cabinet order with 

the matching cabinet order from ‘‘Floor 

Broker B’’ for 250 contracts and 

matching the balance of 250 contracts 

with ‘‘Floor Broker C’’. The Floor Broker 

matched the cabinet orders based on the 

sequence in which the orders were 

received in the crowd at the time the 

cabinet order was represented. If there 

are no matching cabinet orders from the 

crowd, the floor broker may match the 

cabinet order with a matching opening 

order from the crowd. If however the 

floor broker holds both a cabinet order 

and a contra side cabinet order, the floor 

broker would be required to 

immediately cross those orders after 

announcing their terms in the crowd, 

regardless of cabinet orders held by 

other floor brokers. This represents a 

change to the priority scheme under the 

current cabinet rule. 

The Exchange is proposing a number 

of additional, minor changes to Rule 

1059. New Rule 1059(a)(iv) would 

require the Floor Broker, once the 

cabinet order has been either crossed or 

matched, to submit the designated 

cabinet form to the Nasdaq Market 

Operations staff for clearance and 

reporting at the close of the business 

day. Current Rule 1059(a)(viii), which 

provides that all cabinet transactions 

shall be reported to the Exchange 

following the close of each business 

day, would be deleted. Finally, Rule 

1059(a)(vii) would be redesignated as 

Rule 1059(a)(v) and would be revised to 

delete an erroneous and outdated crossVerDate Sep<11>2014 16:52 Nov 15, 2017 Jkt 244001 PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 E:\FR\FM\16NON1.SGM 16NON1

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Federal Register / Vol. 82, No. 220 / Thursday, November 16, 2017 / Notices 53545 

7No changes are proposed to be made to Rule 

1059(b) or to the Commentary. 

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

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

10 15 U.S.C. 78s(b)(3)(A)(iii). 

11 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. 12 17 CFR 200.30–3(a)(12). 

reference to Rule 1038, previously 

deleted from the rulebook.7

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, by 

providing detailed procedures for 

cabinet trades without the participation 

of specialists. As noted above, 

specialists are no longer common on the 

trading floor. By adopting the proposed 

amendments to the cabinet rules 

detailed above, the Exchange will 

maintain the ability for market 

participants to close out positions in 

which the value of the contract is less 

than the value of the contract at the 

minimum increment. The proposed rule 

change will conform the description of 

procedures in Rule 1059 to actual 

current practice. The proposed rule 

change permits market participants to 

continue to execute cabinet trades on 

the Exchange, even without the 

participation of specialists. The changes 

to the priority in which cabinet rules are 

executed are necessary in view of the 

new procedures for execution of cabinet 

trades without the participation of a 

specialist. The proposed amendments 

promote just and equitable principles of 

trade by setting forth priority rules for 

trade executions, and by requiring use 

of Exchange designated cabinet 

transaction forms to record information 

and the submission of the forms to 

Nasdaq Market Operations staff for the 

clearance and reporting of the cabinet 

trades. 

The role of the specialist has changed 

on the Exchange, and specialists are no 

longer present in all options classes on 

the Exchange’s trading floor. The 

proposed rule change would maintain 

market participants’ ability to execute 

cabinet transactions on the Exchange’s 

trading floor, in an open manner and in 

compliance with new procedures 

specified in the revised rule. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

proposed rule change permits market 

participants to continue to execute 

cabinet trades on the Exchange, even 

without the participation of specialists. 

The proposed amendments will apply to 

all Floor Brokers equally and in the 

same way. Phlx notes that market 

participants may also execute cabinet 

transactions on other exchanges. 

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 10 and 

subparagraph (f)(6) of Rule 19b-4 

thereunder.11

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– 

Phlx–2017–87 on 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–Phlx–2017–87. 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–Phlx–2017–87 and should 

be submitted on or before December 7, 

2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–24779 Filed 11–15–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Submission for OMB Review; 

Comment Request 

Upon Written Request, Copies Available 

From: Securities and Exchange 


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