Document ID: SEC-2011-1134-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-08-08T04:00Z

[Federal Register Volume 76, Number 152 (Monday, August 8, 2011)]
[Notices]
[Pages 48195-48197]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19991]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65010; File No. SR-Phlx-2011-100]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating 
to Member and Member Organization Participation

August 2, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on July 26, 2011, NASDAQ OMX 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to apply Exchange Rule 3211 entitled ``PSX 
Participant Registration'' to members and member organizations 
conducting an options business.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
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

[[Page 48196]]

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 purpose of the proposed rule change is to apply Exchange Rule 
3211, entitled ``PSX Participant Registration'' to members and member 
organizations transacting options. The Exchange proposes to clearly 
specify requirements for all members and member organizations to access 
the Exchange's trading system.
    The Exchange currently requires PSX Participants to comply with 
certain requirements to access the Exchange's trading system as 
specified in Exchange Rule 3211.\3\ The Exchange proposes to apply 
substantially the same requirements in new Exchange Rule 911 to members 
and member organizations transacting options, by eliminating paragraphs 
(a) through (c) in Exchange Rule 3211, located in the PSX Rules, and 
adopting new Exchange Rule 911, which is proposed to be located in the 
Rules of the Exchange, and making it applicable to all members of the 
Exchange. The Exchange proposes to add new Exchange Rule 911 to the 
list of Rules in Exchange Rule 3202, entitled ``Application of Other 
Rules of the Exchange,'' so that paragraphs (a) through (c) in Exchange 
Rule 911 would continue to apply to PSX Participants. Also, the 
Exchange proposes to rename Exchange Rule 3211 ``Sponsored 
Participants'' to accurately reflect the substance of the remaining 
language in 3211(d), which the Exchange would rename as paragraph ``a'' 
to reflect the removal of the previous paragraphs.
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    \3\ See Exchange Rule 3211 entitled ``PSX Participant 
Registration,'' which is applicable to PSX Participants.
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    Today, the Exchange's trading system is accessible to all Exchange 
members and member organizations, transacting equities or options, that 
meet the registration, qualification and other membership requirements 
set forth in the Exchange Rules. The Exchange's trading system, for 
purposes of this Rule 911, shall include NASDAQ OMX PSX (``PSX''),\4\ 
PHLX XL[supreg] \5\ and the Floor Broker Management System 
(``FBMS''),\6\ (collectively ``System'').\7\
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    \4\ PSX is a cash equities electronic trading platform. 
Specifically, PSX is an open-access fully electronic integrated 
order display and execution system for NMS stocks.
    \5\ PHLX XL[supreg] is the Exchange's automated options trading 
system. This proposal refers to ``PHLX XL'' as the Exchange's 
automated options trading system. In May 2009 the Exchange enhanced 
the system and adopted corresponding rules referring to the system 
as ``Phlx XL II.'' See Securities Exchange Act Release No. 59995 
(May 28, 2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32). The 
Exchange intends to submit a separate technical proposed rule change 
that would change all references to the system from ``Phlx XL II'' 
to ``PHLX XL'' for branding purposes.
    \6\ FBMS is designed to enable floor brokers and/or their 
employees to enter, route, and report transactions stemming from 
options orders received on the Exchange. FBMS also is designed to 
establish an electronic audit trail for options orders represented 
and executed by floor brokers on the Exchange. See Exchange Rule 
1080, commentary .06
    \7\ PSX Participants are not subject to this Rule, but are 
subject to Exchange Rule 3211. See Exchange Rule 3211.
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    Specifically, the Exchange proposes to apply the provisions of new 
proposed Rule 911 to options members and member organizations. The 
provisions in section (a) are clarifying amendments as options members 
are required to comply with these provisions today. For example, the 
obligation to register in paragraph (a) and to execute all applicable 
agreements applies today to option members.\8\ The requirement to have 
a membership in or arrangement with a clearing agency also applies 
today to option members.\9\ Compliance with all applicable Rules and 
procedures is specified in By-Law Article VI, Section 6-1 entitled 
``Rights and Privileges'' and Section 6-12 entitled ``Dealing on the 
Exchange,'' which By-Laws apply to all Exchange members.\10\ The 
maintenance of physical security of the equipment located on the 
premises of the member or member organization and improper use of the 
Exchange's System is also currently enumerated in the Rules which are 
applicable to options members.\11\ The acceptance and settlement of 
trades effected by a member or member organization is delineated in the 
Rules today and applicable to option members.\12\ The input of accurate 
information into the Exchange's System \13\ and the effective date of a 
member or member organization's registration, are described in the 
Rules regarding registration of members and member organizations, which 
are applicable to option members.\14\
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    \8\ See Exchange Rules 600 (Registration), 604 (Registration and 
Termination of Registered Persons), 620 (Trading Floor 
Registration), 640 (Continuing Education for Registered Persons), 
901 (Denials of and Conditions to Membership), Rule 908 (Rights and 
Privileges of A-1 Permits) and Rule 910 (Qualification as Member 
Organization), among other Rules.
    \9\ See Exchange Rule 59 (Deliveries through Registered Clearing 
Agencies).
    \10\ See also Exchange Rule 1080 (Phlx XL and PHLX XL II) 
describes PHLX XL and the obligations of options members.
    \11\ See Exchange By-Law Article VI, Section 6-3 (Use of 
Facilities of Exchange), Rule 606 (Communication and Equipment), 
Option Floor Procedure Advice F-31 (Communications and Equipment), 
By-Law Article VII, Sec. 7-3 (Membership Qualifications) and 
Exchange Rule 1080 (Phlx XL and PHLX XL II) describes PHLX XL and 
the obligations of options members.
    \12\ See Exchange Rules 1035 (Acceptance of Bid or Offer), 1044 
(Delivery and Payment) and 1052 (Responsibility of Clearing Options 
Members for Exchange Options Transactions). These Rules are 
applicable to options members today.
    \13\ See Exchange Rule 1053 (Filing Of Trade Information), 1055 
(Reporting of Compared Trades to Options Clearing Corporation) and 
1063 (Responsibilities of Floor Brokers). These Rules are applicable 
to options members today.
    \14\ See Exchange Rules 600 (Registration), 604 (Registration 
and Termination of Registered Persons) and 620 (Trading Floor 
Registration). These Rules are applicable to options members today.
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    The member and member organization's continuing obligation to 
report any noncompliance with registration requirements is inferred 
today in the Exchange's Rules.\15\ The Exchange believes that this 
provision in section (b) of proposed Rule 911 should be equally applied 
to option members as it is currently applicable to PSX Participants 
today.
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    \15\ See Exchange Rule 908 (Rights and Privileges of A-1 
Permits) which provides that permit holders must abide by the By-
Laws and Rules of the Exchange.
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    Finally, the provision in section (c) to impose temporary 
restrictions upon the automated entry or updating of orders or quotes/
orders as the Exchange may determine is not currently applicable to 
options members but only PSX members today. The Exchange is proposing 
to apply this provision to options members in order that the Exchange 
uniformly may apply its rules regarding System access to all members of 
the Exchange. The Exchange believes that this provision of the proposed 
Rule is necessary to protect the integrity of the Exchange's systems. 
For example, such temporary restrictions may be necessary to address a 
system problem at a particular member or member organization or at the 
Exchange, or an unexpected period of extremely high message traffic. 
The scope of any such restrictions shall be communicated to the 
affected options member or member organization in writing.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \16\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \17\ 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

[[Page 48197]]

open market and a national market system, and, in general to protect 
investors and the public interest, by further clarifying the Exchange's 
Rules with respect to its members and member organizations transacting 
options. The Exchange believes that equally applying the rule to both 
options members and member organizations and PSX Participants further 
protects the public interest.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that this proposed rule would, in part, 
clarify the obligations of an option member or member organization with 
respect to the provisions in section (a)(1) through (6) of the proposed 
Rule. As specified herein, the Exchange believes that option members 
today are subject to these requirements and the proposal merely serves 
to clarify these obligations in a single Rule. These requirements in 
section (a) of the proposed rule seek to ensure that the option members 
and member organizations are required to maintain certain standards to 
protect the integrity of the Exchange's systems, as is the case today 
for PSX Participants.
    The Exchange believes that an options member and member 
organization's continuing obligation to report any noncompliance with 
registration requirements is inferred in the Rules today as described 
herein. The application of proposed Rule 911 to option members would 
adopt a clear Rule for option members regarding their obligation to 
report noncompliance with any registration requirement, as is the case 
today for PSX Participants. The Exchange believes this provision is 
instrumental in assisting the Exchange with its regulatory 
responsibilities.
    Finally, the Exchange proposes to add a new provision, that it may 
impose temporary restrictions upon the automated entry or updating of 
orders or quotes/orders as the Exchange may determine to be necessary 
to protect the integrity of the Exchange's systems, for option members. 
This provision is applicable today to PSX Participants. The Exchange 
believes that this ability to impose a temporary restriction upon 
members and member organizations transacting options would assist the 
Exchange in maintaining the integrity of the market and protecting 
investors and the public interest.

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.

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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) \19\ 
thereunder.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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.
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    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 necessary or 
appropriate in the public interest, for the protection of investors, or 
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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2011-100 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2011-100. 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 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 
a.m. and 3 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; 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-Phlx-2011-100 and should be 
submitted on or before August 29, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19991 Filed 8-5-11; 8:45 am]
BILLING CODE 8011-01-P