Document ID: SEC-2015-0555-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2015-04-01T04:00Z

[Federal Register Volume 80, Number 62 (Wednesday, April 1, 2015)]
[Notices]
[Pages 17534-17537]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-07366]

[[Page 17534]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74592; File No. SR-Phlx-2015-28]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Harmonization of Phlx Rules

March 26, 2015.
    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 March 25, 2015, 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 amend Rules 771 entitled ``Excessive 
Trading of Members;'' 832, entitled ``Price Adjustment of Open Orders 
on Ex-Date;'' and 1006 entitled ``Other Restrictions on Exchange 
Options Transactions and Exercises.'' The Exchange proposes to make 
minor amendments for rule conformity to Rules 1001, entitled ``Position 
Limits;'' 1002 entitled ``Exercise Limits;'' 1003 entitled ``Reporting 
of Options Positions;'' 1040 entitled ``Failure to Pay Premium;'' 1041 
entitled ``Options Contracts Of Suspended Members;'' 1042 ``Exercise of 
Equity Option Contracts;'' 1044 ``Delivery and Payment;'' 1048 ``Stock 
Transfer Tax;'' and 1090 entitled ``Clerks.'' The Exchange proposes to 
delete Rules 1021 entitled ``Excessive Dealing in Options;'' 1038 
entitled ``Open Orders on Ex-Date; '' and 1045 ``Officers and Employees 
Restricted.''
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.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 purpose of this proposed rule change is to update certain of 
the 1000 series options rules to harmonize the Rulebook and modernize 
Exchange rules. The Exchange is also proposing to amend other non-
options rules as well. The Exchange proposes to amend rule text, make 
minor technical amendments to certain rules, such as numbering, and to 
delete other rules. Each proposed rule change will be discussed in 
greater detail below.

Amendment to Certain Exchange Rules

    The Exchange proposes to amend Rule 771, entitled ``Excessive 
Trading of Members,'' to combine rule text from Rule 1021 entitled 
``Excessive Dealing in Options. Both of these rules cover the same 
basic topic, excessive trading of members. Rule 1021 is specific to 
options, while Rule 771 is broader in nature. The Exchange proposes to 
add a new paragraph to Rule 771 which contains similar rule text to 
Commentary .01 of Rule 1021.\3\ The Exchange does not believe it is 
necessary to have two rules in the Rulebook which discuss the same 
restriction, therefore, the Exchange will delete Rule 1021. This rule 
change is proposed to harmonize the Rulebook.
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    \3\ The proposed text omits a reference to ``options'' that are 
[sic] currently in Rule 1021.
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    The Exchange proposes to amend Rule 832, entitled ``Price 
Adjustment of Open Orders on Ex-Date,'' to combine rule text from Rule 
1038 entitled ``Open Orders on Ex-Date.'' Both of these rules cover the 
same basic topic, price adjustment of open orders on ``Ex-Date.'' Rule 
1038 is specific to options, while Rule 832 is broader in nature. The 
Exchange proposes to add a new paragraph to Rule 832 which contains 
similar rule text to Rule 1038.\4\ The Exchange does not believe it is 
necessary to have two rules in the Rulebook which discuss the same 
restriction; therefore the Exchange will delete Rule 1038. This rule 
change is proposed to harmonize the Rulebook.
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    \4\ The proposed text adds a new reference to ``options'' in 
Rule 832.
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    The Exchange proposes to amend Rule 1006 entitled ``Other 
Restrictions on Exchange Options Transactions and Exercises,'' to 
harmonize this rule with NASDAQ Stock Market LLC (``NOM'') and NASDAQ 
OMX BX, Inc. (``BX'') rules at Chapter III, Section 12.\5\ The Exchange 
believes the NOM and BX rules are more specific with respect to 
restrictions as compared to the Phlx rule. The proposed rule likewise 
imposes restrictions on transactions or exercises in one or more series 
of options, similar to the Phlx rule.\6\ A similar restriction exists 
in the current Phlx rule with respect to the ten business days prior to 
the expiration date of a given series of options, other than index 
options, which shall include such expiration date for an option 
contract that expires on a business day.\7\ Specifically the proposed 
rule would note, ``[n]otwithstanding the foregoing, during the ten (10) 
business days prior to the expiration date of a given series of 
options, other than index options, which shall include such expiration 
date for an option contract that expires on a business day, no 
restriction on exercise under this Section may be in effect with 
respect to that series of options. With respect to index options, 
restrictions on exercise may be in effect until the opening of business 
on the business day of their expiration or, in the case of an option 
contract expiring on a day that is not a business day, on the last 
business day before the expiration date.'' \8\
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    \5\ See NOM and BX Rules at Chapter III, Section 12 entitled 
``Other Restrictions on Options Transactions and Exercises.''
    \6\ See proposed Rule 1006(a) and (a)(i).
    \7\ See proposed Rule 1006(a)(ii). The proposed new rule text 
will not distinguish between European and American settlement with 
regard to the ten (10) business day restriction. The current Phlx 
rule does make such a distinction.
    \8\ Id.
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    The Exchange proposes to add specific language concerning exercise 
of American-style cash-settled index options, which shall be prohibited 
during any time when trading in such options is delayed, halted, or 
suspended.\9\ The Exchange proposes to provide the following exceptions
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    \9\ See proposed Rule 1006(a)(iii).
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    (1) The exercise of an American-style, cash-settled index option 
may be processed and given effect in

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accordance with and subject to the Rules of The Options Clearing 
Corporation while trading in the option is delayed, halted, or 
suspended if it can be documented, in a form prescribed by Phlx 
Regulation, that the decision to exercise the option was made during 
allowable time frames prior to the delay, halt, or suspension;
    (2) Exercises of expiring American-style, cash-settled index 
options shall not be prohibited on the business day of expiration, or 
in the case of an option contract expiring on a day that is not a 
business day, the last business day prior to their expiration;
    (3) Exercises of American-style, cash-settled index options shall 
not be prohibited during a trading halt that occurs at or after 4 p.m. 
Eastern time. In the event of such a trading halt, exercises may occur 
through 4:20 p.m. Eastern time. .[sic] In addition, if trading resumes 
following such a trading halt pursuant to the procedures described in 
Rules 1047 and 1047A, exercises may occur during the resumption of 
trading and for five (5) minutes after the close of the resumption of 
trading. The provisions of this subparagraph (a)(iii)(3) are subject to 
the authority of the Board to impose restrictions on transactions and 
exercises pursuant to paragraph (a) of this Rule; and
    (4) Phlx may determine to permit the exercise of American-style, 
cash-settled index options while trading in such options is delayed, 
halted, or suspended.\10\
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    \10\ See proposed Rule 1006(a)(iii).

Further, whenever the issuer of a security underlying a call option 
traded on Phlx is engaged or proposes to engage in a public 
underwritten distribution (``public distribution'') of such underlying 
security or securities exchangeable for or convertible into such 
underlying security, the underwriters may request that Phlx impose 
restrictions upon all opening writing transactions in such options at a 
``discount'' where the resulting short position will be uncovered 
(``uncovered opening writing transactions''). The rule notes conditions 
which are necessary for the imposition of restrictions, such as:
    (1) Less than a majority of the securities to be publicly 
distributed in such distribution are being sold by existing security 
holders;
    (2) the underwriters agree to notify Phlx Regulation upon the 
termination of their stabilization activities; and
    (3) the underwriters initiate stabilization activities in such 
underlying security on a national securities exchange when the price of 
such security is either at a ``minus'' or ``zero minus'' tick.\11\
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    \11\ See proposed Rule 1006(b)(i).

Upon receipt of such a request and determination that the conditions 
listed above are met, Phlx Regulation shall impose the requested 
restrictions as promptly as possible but no earlier than fifteen (15) 
minutes after members or member organizations shall have been notified 
and shall terminate such restrictions upon request of the underwriters 
or when Phlx Regulation otherwise discovers that stabilizing 
transactions by the underwriters has been terminated.\12\ An uncovered 
opening writing transaction in a call option will be deemed to be 
effected at a ``discount'' when the premium in such transaction is 
either: in the case of a distribution of the underlying security not 
involving the issuance of rights and in the case of a distribution of 
securities exchangeable for or convertible into the underlying 
security, less than the amount by which the underwriters' stabilization 
bid for the underlying security exceeds the exercise price of such 
option; or in the case of a distribution being offered pursuant to 
rights, less than the amount by which the underwriters' stabilization 
bid in the underlying security at the subscription price exceeds the 
exercise price of such option.\13\
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    \12\ See proposed Rule 1006(b)(ii).
    \13\ See proposed Rule 1006(b)(iii).
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    The Exchange believes that adopting the NOM and BX rules provides 
greater specificity with respect to restrictions on options 
transactions and exercises.
Minor Technical Amendments to Options Rules
    The Exchange proposes to amend Rule 1001, entitled ``Position 
Limits,'' to remove the header ``Commentary'' from the rule and replace 
it with consecutive numbering. The remainder of the changes correct 
cross-references to the newly renumbered sections, remove extraneous 
dashes and add a period and outside parentheses to the numbering in the 
rule text to conform the text to the portion that is not in the 
Commentary today.
    The Exchange proposes to amend Rule 1002 entitled ``Exercise 
Limits,'' to similarly remove the header ``Commentary'' from the rule 
and replace it with consecutive lettering.
    The Exchange proposes to amend Rule 1003 entitled ``Reporting of 
Options Positions,'' to remove the footnote in the rule and instead 
place the language in the footnote within the body of the rule. A minor 
grammatical correction was made to remove a dash in this section in the 
word ``market maker.''
    The Exchange proposes to amend Rule 1040 entitled ``Failure to Pay 
Premium,'' to capitalize the certain terms and also utilize a newly 
defined term ``OCC'' throughout the rule.
    The Exchange proposes to amend Rule 1041 entitled ``Options 
Contracts Of Suspended Members,'' to utilize a newly defined term 
``OCC'' throughout the rule.
    The Exchange proposes to amend Rule 1042 ``Exercise of Equity 
Option Contracts,'' to define the term ``CEA'' within the Rule and to 
remove the header ``Commentary'' and renumber the remainder of the 
rule. The Exchange is also proposing to remove a specific reference to 
The Options Clearing Corporation's Articles and instead refer to the 
by-laws more generally and utilize a newly defined term ``OCC'' 
throughout the rule.
    The Exchange proposes to amend Rule 1044 ``Delivery and Payment,'' 
to utilize a newly defined term ``OCC'' throughout the rule.
    The Exchange proposes to amend Rule 1048 ``Stock Transfer Tax, 
utilize a newly defined term ``OCC'' throughout the rule.
    The Exchange proposes to amend Rule 1090 entitled ``Clerks,'' 
update a reference to an outdated ``DOT machine'' and replace that 
reference with the updated term ``order handling entry device.'' The 
Exchange also proposes to remove the header ``Commentary'' and renumber 
the remainder of the rule.
Deleted Rules
    The Exchange proposes to delete Rules 1021 entitled ``Excessive 
Dealing in Options;'' and 1038 entitled ``Open Orders on Ex-Date;'' 
because these Rules are being combined with Rules 771 and 832, 
respectively, as described above. The Exchange is also proposing to 
delete Rule 1045 ``Officers and Employees Restricted,'' which is 
covered in detail by the Exchange's Code of Ethics.\14\ Rule 1045 does 
not

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apply to members, but rather applies to employees of the Exchange. The 
Exchange has policies and procedures which are applicable to employees 
which are not contained in the Rulebook. The Exchange believes that 
this rule, which does not apply to members, is not necessary to retain 
in the Rulebook.
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    \14\ Phlx Rule 1045(a) requires every salaried officer or 
employee of the Exchange and every salaried officer or employee of 
any corporation in which the Exchange owns the majority of the stock 
to promptly report to the Exchange every purchase or sale for his 
own account or the account of others of any security which is the 
underlying security of any option contract admitted to dealings on 
the Exchange. Today, Phlx employees are subject to the NASDAQ Code 
of Ethics, which refers to the Global Trading Policy which requires 
an annual and other periodic reporting of securities holdings to the 
Exchange. Phlx Rule 1045(b) provides that no salaried officer or 
employee of the Exchange or salaried officer or employee of any 
corporation in which the Exchange owns the majority of the corporate 
stock may purchase or sell for his own account or for the account of 
others any option contract which entitles the purchaser to purchase 
or sell any security described in paragraph (a) of Rule 1045 or any 
foreign currency option contract admitted to dealings on the 
Exchange. The NASDAQ Code of Ethics refers to the Global Trading 
Policy which prohibits employees from holding or trading certain 
securities noted on the prohibited list. The prohibited list 
prohibits employees from holding or trading certain securities 
because those companies have dealings on the Exchange. The Code of 
Ethics is more expansive in scope as compared to Phlx Rule 1045.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \15\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \16\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, 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. The Exchange believes that 
these proposed rule changes will harmonize and modernize the Phlx 
Rulebook.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    The proposed rule changes to amend various options rules should 
harmonize the Exchange's Rulebook by removing duplicate rules by 
combining general Phlx rules with options rules, conforming the 
language in certain rules by defining terms within the rules and 
removing Commentary sections and instead renumbering the rule; and 
deleting unnecessary rules. It is in the interests of the protection of 
investors to eliminate any confusion among market participants with 
respect to the Rulebook. The rule changes are intended to provide a 
clearer Rulebook in order that market participants are aware of their 
obligations. The Exchange believes that these amendments will make 
clear the manner in which the Exchange operates and thereby remove 
impediments to and provide free and open markets.
    The Exchange's proposed deletion of Rule 1045 would not impact 
members because this rule applies solely to employees of the Exchange. 
The Exchange has policies and procedures which are applicable to 
employees which are not contained in the Rulebook. The Exchange 
believes that this rule, which does not apply to members, is not 
necessary to retain in the Rulebook. The proposed amendment to Rule 
1006 to adopt similar NOM and BX Rules \17\ will provide members with 
additional specificity with respect to restrictions on options 
transactions and exercises, similar to the current practice at NOM and 
BX.
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    \17\ See note 5.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. The Exchange's proposed amendments seek to harmonize the 
Rulebook by combining duplicative rules, conforming the text of the 
rules and also deleting unnecessary rules. Certain of these amendments 
apply to all members, equity and options, and other rules related to 
options, apply specifically to options members. The rules uniformly 
apply to members transacting a specific product. The proposed 
amendments do not unduly burden competition on the Exchange.
    The proposed amendment to Rule 1006 will provide members with a 
rule substantially similar to rules on NOM and BX.\18\ The Exchange 
believes that adopting the NOM and BX rules \19\ will assist the 
Exchange in competing more effectively with respect to options.
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    \18\ See note 25.
    \19\ Id.
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    The proposed deletion of Rule 1045 applies specifically to 
employees of the Exchange. This rule does not impact the competition 
among members transacting business on the Exchange but rather concerns 
the operation of the Exchange and conduct of its employees.

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)(ii) of the Act \20\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \21\ 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: (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-2015-28 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-2015-28. 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

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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 such filing also will be available for 
inspection and copying at the principal offices 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-2015-28, and should be 
submitted on or before April 22, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-07366 Filed 3-31-15; 8:45 am]
BILLING CODE 8011-01-P