Document ID: SEC-2011-1684-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-11-02T04:00Z

[Federal Register Volume 76, Number 212 (Wednesday, November 2, 2011)]
[Notices]
[Pages 67786-67787]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28372]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65644; File No. SR-Phlx-2011-123]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order 
Granting Approval of Proposed Rule Change Relating to the Quarterly 
Trading Requirements Applicable to Registered Options Traders

October 27, 2011.

I. Introduction

    On August 24, 2011, NASDAQ OMX 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 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
change the quarterly trading requirements applicable to Registered 
Options Traders (``ROTs''). The proposed rule change was published for 
comment in the Federal Register on September 9, 2011.\3\ The Commission 
received no comment letters on the proposal. This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 65257 (September 2, 
2011), 76 FR 55996.
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II. Description of the Proposal

    The Exchange proposes to modify the quarterly trading requirements 
applicable to ROTs. ROTs can be either Streaming Quote Traders 
(``SQTs''), Remote SQTs (``RSQTs'') or non-SQT ROTs. The quarterly 
trading requirements apply to two types of ROTs: SQTs and non-SQT ROTs.
    Currently, Phlx Rule 1014 contains two quarterly trading 
requirements--in person and in assigned. First, Commentary .01 requires 
that in order for an ROT (other than an RSQT or a Remote Specialist) to 
receive specialist margin treatment for off-floor orders in any 
calendar quarter, the ROT must execute the greater of 1,000 contracts 
or 80% of his total contracts that quarter in person (not through the 
use of orders) and 75% of his total contracts that quarter in assigned 
options.
    Second, the ``in assigned'' quarterly trading requirement in 
current Commentary .03 requires that, except for unusual circumstances, 
at least 50% of the trading activity in any quarter (measured in terms 
of contract volume) of an ROT (other than an RSQT) shall ordinarily be 
in classes of options to which he is assigned. Temporarily undertaking 
the obligations of paragraph (c) of Phlx Rule 1014 at the request of a 
member of the Exchange in non-assigned classes of options shall not be 
deemed trading in non-assigned option contracts.
    The Exchange proposes to amend Commentary .01 to adopt a new 
quarterly requirement such that an ROT (other than an RSQT or a Remote 
Specialist) would be required to trade 1,000 contracts and 300 
transactions on the Exchange each quarter. Transactions executed in the 
trading crowd where the contra-side is an ROT would not be included. 
The Exchange proposes that this requirement would be a pure trading 
requirement, not limited to assigned options and in person trading. 
Accordingly, the new trading requirement could be fulfilled with trades 
and contracts that are not in assigned options and not executed in 
person.
    In addition, the Exchange proposes to amend the in person trading 
requirement in Commentary .01 in two ways. First, the Exchange proposes 
to exclude transactions executed in the trading crowd where the contra-
side is an ROT from the existing in person trading requirement. Second, 
the Exchange proposes to permit non-SQT ROTs to use orders entered in 
person to meet the in person trading requirement. The Exchange 
represents that the only other way to participate in trades other than 
through the use of orders is by quoting; while SQTs quote 
electronically by ``streaming'' quotations into the Exchange, non-SQT 
ROTs may only quote verbally in response to floor brokers representing 
orders in the trading crowd. The Exchange believes that the limitation 
on the use of orders with respect to non-SQT ROTs is obsolete, as, over 
time, following the movement toward a more electronic trading platform 
in options, it has become difficult for such ROTs to comply with the 
trading requirement without using orders. The Exchange represents that 
non-SQT ROTs can only comply with the in person quarterly trading 
requirement by participating in crowd trades, which they cannot 
control, in terms of frequency.
    The Exchange believes that the proposed new trading requirement 
coupled with the proposed changes to the existing ``in person'' trading 
requirement should encourage a more regular presence and thus result in 
more active market making. In addition, Phlx states that excluding 
transactions where the contra-side is another ROT should encourage more 
regular and active market making.

III. Discussion

    The Commission 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.\4\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\5\ which requires, among other things, that 
the rules of a national securities exchange be designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts, 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.
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    \4\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \5\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed changes to the trading 
requirements applicable to ROTs should encourage more active market 
making and thereby promote the provision of liquidity to the market. In 
particular, by excluding in crowd ROT-to-ROT transactions from the 
quarterly trading requirements applicable to a ROT, the proposal should 
help to encourage the regular posting of liquidity. The Commission 
believes that these

[[Page 67787]]

proposed changes to the quarterly trading requirements should enhance 
the market making function performed by ROTs and thereby serve to 
maintain fair and orderly markets and generally promote the protection 
of investors and the public interest.

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (SR-Phlx-2011-123) be, and it 
hereby is, approved.
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    \6\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28372 Filed 11-1-11; 8:45 am]
BILLING CODE 8011-01-P