Document ID: SEC-2016-0741-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX, LLC
Posted Date: 2016-04-28T04:00Z

[Federal Register Volume 81, Number 82 (Thursday, April 28, 2016)]
[Notices]
[Pages 25464-25467]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09896]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77687; File No. SR-Phlx-2016-48]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Regarding Rule 606

April 22, 2016.
    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 April 7, 2016, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II 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 is filing with the Commission a proposal to amend Rule 
606 (Communications and Equipment). The proposed amendment is described 
further below.\3\
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    \3\ References to rules are, unless otherwise stated, to the 
rules of the Exchange.
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    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 Exchange proposes to amend Rule 606 to: (1) Add language that 
would allow the Exchange to limit the use of a communication device 
under certain circumstances; (2) Clarify the process for changing 
registration of user, and delete obsolete language regarding wattage 
and add language regarding Web-based and open microphone (``open mic'') 
\4\ communication applications; (3) Clarify [sic] language regarding 
call forwarding and open mic; (4) Delete obsolete language regarding 
stock execution clerks and in-house phone use; and (5) Add [sic] 
language regarding records.
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    \4\ Open mic allows listeners other than the intended party on 
the other end of a line (e.g., telephone) to listen to the 
conversation.
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    Rule 606, which applies to the use of electronic communication 
devices on the options floor of the Exchange (``Options Floor''), has 
been around for more than fifty years,\5\ at which time Exchange 
options trading was strictly on-floor open outcry through specialists. 
Exchange options trading has, since that time, developed into a robust 
hybrid

[[Page 25465]]

system that is currently largely electronic and off-floor \6\ but 
continues to have an on-floor specialist \7\ and an open outcry trading 
floor. The Exchange is now updating and modernizing Rule 606 as 
discussed below.\8\
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    \5\ Since the inception of Rule 606 in 1964, the rule was 
amended about ten times, with the last substantive amendment in 
2002. See Securities Exchange Act Release No. 49098 (February 13, 
2002), 67 FR 8053 (February 21, 2002) (SR-Phlx-2001-109) (notice of 
filing and immediate effectiveness regarding tethered communication 
devices). See also Securities Exchange Act Release Nos. 49098 
(January 16, 2004), 69 FR 3974 (January 27, 2004) (SR-Phlx-2003-73) 
(approval order); 54538 (September 28, 2006), 71 FR 59184 (October 
6, 2006) (SR-Phlx-2006-43) (approval order); 59924 (May 14, 2009), 
74 FR 23759 (May 20, 2009) (Phlx-2009-23) (approval order); and 
64338 (April 25, 2011), 76 FR 24069 (April 29, 2011) (SR-Phlx-2011-
13) (approval order) (these last four proposals made non-substantive 
technical or conforming changes to Rule 606).
    \6\ Electronic traders include market makers that are SQTs, 
RSQTs, and off-floor specialists (``Remote Specialists''). See Rules 
1014(b)(ii)(A), 1014(b)(ii)(B), and 1020.
    \7\ Unlike specialists, Remote Specialists do not have a 
physical presence on the floor of the Exchange. Rule 1020.
    \8\ While the vast majority of options-related rules are found 
in Rule 1000 and higher (with option index rules found in Rule 1000A 
and higher), some of the older options-related rules are, as 
discussed, numbered below 1000.
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    First, currently Rule 606 states in section (d) that the Exchange 
may remove any telephonic, electronic, or wireless equipment that 
violates subsection (b)(2) from any Exchange facility.\9\ The Exchange 
proposes language in section (d) of Rule 606 to indicate when the 
Exchange may deny, limit, or revoke the use of any communication device 
under certain circumstances.
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    \9\ Section (b)(2) of Rule 606 states: (2) No member, member 
organization or person associated with a member organization shall: 
(i) Establish or maintain any telephonic, electronic or wireless 
transmitting system or device, including related antennas, on the 
Options Floor or (ii) operate any other equipment on the Options 
Floor that creates radio frequency (RF) or other interference with 
the systems of the Exchange or other members.
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    Specifically, the Exchange proposes language in section (d) to 
state that the Exchange may deny, limit, or revoke the use of any 
communication device: [sic] whenever it determines that use of such 
communication device: (1) Interferes with normal operation of the 
Exchange's own systems or facilities or with the Exchange's regulatory 
duties; (2) is inconsistent with the public interest, the protection of 
investors or just and equitable principles of trade; or (3) interferes 
with the obligations of a member or member organization to fulfill its 
duties under, or is used to facilitate any violation of, the Securities 
Exchange Act or rules thereunder, or Exchange rules. This gives the 
Exchange the opportunity to limit the use of a communication device 
that interferes or is inconsistent with three specified crucial areas 
as proposed in the rule. The proposed section (d) provision is similar 
in relevant part to a provision in the communication rule of another 
options Exchange, Chicago Board Options Exchange (``CBOE''),\10\ and is 
similar to certain provisions of other Exchange rules.\11\
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    \10\ Proposed Rule 606(d)(1) states: The Exchange may deny, 
limit or revoke the use of any communication device whenever it 
determines that use of such communication device: (1) Interferes 
with normal operation of the Exchange's own systems or facilities or 
with the Exchange's regulatory duties, (2) is inconsistent with the 
public interest, the protection of investors or just and equitable 
principles of trade, or (3) interferes with the obligations of a 
member or member organization to fulfill its duties under, or is 
used to facilitate any violation of, the Securities Exchange Act or 
rules thereunder, or Exchange rules. CBOE Rule 6.23(b) states: The 
Exchange may deny, limit or revoke the use of any communication 
device whenever it determines that use of such communication device: 
(1) Interferes with the normal operation of the Exchange's own 
systems or facilities or with the Exchange's regulatory duties, (2) 
is inconsistent with the public interest, the protection of 
investors or just and equitable principles of trade, or (3) 
interferes with the obligations of a Trading Permit Holder to 
fulfill its duties under, or is used to facilitate any violation of, 
the Securities Exchange Act or rules thereunder, or Exchange rules.
    \11\ See, e.g., Rule 1005 and Rule 1006 (provisions regarding 
advisable in the public interest or for the protection of 
investors).
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    Second, Rule 606 currently states in Section (e)(1) regarding 
registration that members and member organizations must register, prior 
to use, any new telephone to be used on the Options Floor. Each phone 
registered with the Exchange must be registered by category of user; 
and if there is a change in the category of any user, the phone must be 
re-registered with the Exchange.\12\ The Exchange now proposes to 
update the process for changing registration of user. Specifically, the 
Exchange proposes to change the requirement in Section (e)(1) that the 
phone must be re-registered with the requirement that the member or 
member organization must immediately inform the Exchange in writing on 
the same day as when the change occurs.
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    \12\ Such users can be, for example, floor broker, specialist, 
or registered options trader. The users that have originally 
registered and still remain on the Exchange floor have not changed 
their category of user.
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    The Exchange believes that the proposed updated procedure is better 
because while the rule currently does not indicate a timeline when [a 
phone must be re-registered, the proposed rule change requires written 
notification to the Exchange on the same day as when the change occurs.
    Rule 606 currently states in Section (e)(2) regarding capacity and 
functionality that no wireless telephone used on the Options Floor may 
have an output greater than one watt. No person on the Options Floor 
may use any device for the purpose of maintaining an open line of 
continuous communication whereby a person not located in the trading 
crowd may continuously monitor the activities in the trading crowd. 
This prohibition covers intercoms, walkie-talkies, and any similar 
devices. Speed-dialing features are permitted on any member telephone.
    The Exchange is now proposing to delete obsolete language regarding 
wattage and to add new language regarding web-based and open mic 
communication applications.\13\ Specifically, the Exchange is proposing 
to delete language in in Section (e)(2) that no wireless telephone used 
on the Options Floor may have an output greater than one watt. While 
the power limitation may have made sense when wireless was just 
initiated as a new technology on the Options Floor,\14\ this wattage 
limitation provision is obsolete and no longer needed. In light of the 
current development of technology, the one watt power limitation 
provision is no longer needed to minimize the possibility of radio 
frequency or other interference with the systems of the Exchange of 
those of other members.
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    \13\ These can be, for example, instant messaging, chat, or 
Skype.
    \14\ See Securities Exchange Act Release No. 43972 (February 15, 
2001), 66 FR 12579 (February 27, 2001) (SR-Phlx-00-48) (approval 
order). The order notes that the purpose of the one watt power 
limitation was to minimize the possibility of radio frequency or 
other interference with the systems of the Exchange of those of 
other members.
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    Rule 606 currently states in Section (e)(2) no person on the 
Options Floor may use any device for the purpose of maintaining an open 
line of continuous communication whereby a person not located in the 
trading crowd may continuously monitor the activities in the trading 
crowd; and that this prohibition covers intercoms, walkie-talkies, and 
any similar devices.\15\ Because of the advancement of technology and 
proliferation of the web, the Exchange is proposing in Section (e)(2) 
to also add Web-based, as well as open mic, communication applications.
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    \15\ For clarity, the Exchange is proposing to state that the 
prohibition in Section (e)(2) covers, ``but is not limited to,'' the 
noted devices.
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    Third, Rule 606 currently states in Section (e)(4) regarding 
brokers that work on the Options Floor (``Floor Brokers'') \16\ [sic] 
may use cellular and cordless telephones, but only to communicate with 
persons located on the Options Floor. These telephones may not include 
a call forwarding feature.\17\ Because of the availability of call 
forwarding and open mic on virtually all wireless phones, the Exchange 
is proposing to update this provision. Specifically, the Exchange is 
proposing in Section (e)(4) to state that telephones used by Floor 
Brokers may not use a call forwarding or open mic

[[Page 25466]]

feature on the Options Floor; and that if a call forwarding or open mic 
feature is available on the phone then such feature must be disengaged 
at all times when the phone is on the Options Floor.
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    \16\ A ``Floor Broker'' is defined in Rule 1060 as ``[a]n 
individual who is registered with the Exchange for the purpose, 
while on the Options Floor, of accepting and handling options 
orders.''
    \17\ Headsets are permitted for Floor Brokers, but if the 
Exchange determines that a Floor Broker is maintaining a continuous 
open line through the use of a headset, the Floor Broker will be 
prohibited from future use of any headset for a length of time to be 
determined by the Exchange. Rule 606(e)(4)(a).
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    Fourth, Rule 606 currently discusses in Section (e)(5) phone use by 
stock execution clerks; and in Section (e)(6) the use of general access 
in-house phones. Stock execution clerks and general access in-house 
phones no longer exist and these terms are obsolete. Therefore, the 
Exchange specifically proposes to delete reference [sic] to these 
obsolete terms from Sections (e)(5) and (e)(6).
    Fifth, Rule 606 currently discusses in Section (e)(7) that members 
must maintain their cellular or cordless telephone records, including 
logs of calls placed, for a period of not less than one year. The 
Exchange reserves the right to inspect and/or examine such telephone 
records. The Exchange proposes to modernize this requirement.
    Specifically, the Exchange proposes in Section (e)(7) to state that 
members must maintain their logs of calls and chats, including cellular 
or cordless telephone records and logs of calls placed, for a period of 
not less than three years, the first two years in an easily accessible 
place. The Exchange believes that this proposed change will help with 
the Exchange's surveillance function. The proposed section (e)(7) 
provision is similar in relevant part to a provision in the 
communication rule of another options exchange, CBOE,\18\ and to other 
Exchange record-keeping rules.\19\
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    \18\ Proposed Rule 606(e)(7) states: Members must maintain logs 
of calls and chats, including their cellular or cordless telephone 
records and logs of calls placed, for a period of not less than 
three years, the first two years in an easily accessible place. The 
Exchange reserves the right to inspect and/or examine such telephone 
records. CBOE Rule 6.23(g) states: Trading Permit Holders must 
maintain records of the use of communication devices, including, but 
not limited to, logs of calls placed; emails; and chats, for a 
period of not less than three years, the first two years in an 
easily accessible place. The Exchange reserves the right to inspect 
such records pursuant to CBOE Rule 17.2.
    \19\ See Rule 616 (electronic filing requirements for uniform 
forms) and Rule 605 (advertisements, market letters, research 
reports and sales literature). See also Rule 1049 (communications to 
customers).
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    Finally, in terms of housekeeping changes in Rule 606(e)(4)(b) the 
Exchange is proposing to substitute the word ``orders'' for ``others'' 
so that the section reads properly.
    The Exchange believes that the proposed changes to Rules 606 will 
make it clearer and better.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\20\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\21\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest by proposing to make several changes in Rule 
606.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the rule change will promote just and 
equitable principles of trade by making the rules clearer and easier to 
use. The Exchange is proposing in Rule 606(d) to add language that 
would allow the Exchange to limit the use of a communication device 
when such device interferes with normal operation of the Exchange's own 
systems or facilities or with the Exchange's regulatory duties, is 
inconsistent with the public interest, the protection of investors or 
just and equitable principles of trade, or interferes with the 
obligations of a member or member organization to fulfill its duties 
under, or is used to facilitate any violation of, the Securities 
Exchange Act or rules thereunder, or Exchange rules. The proposed 
section (d) provision is, as discussed, practically verbatim like a 
provision in the communication rule of another options Exchange, CBOE.
    The Exchange is proposing in Rule 606(e)(2) to delete language 
regarding wattage that is obsolete and no longer needed.
    The Exchange is also proposing in Rule 606(e)(5) to delete obsolete 
language regarding stock execution clerks and in-house phone use, as 
these are not present on the Options Floor. The Exchange believes that 
the rule change will serve to protect investors and the public by 
making the rule tighter and better for surveillance regarding 
communication devices.
    The Exchange is proposing language in Rule 606(e)(1) to clarify the 
process for changing registration of user so that, instead or having to 
re-register when user status changes, the member or member organization 
must immediately inform the Exchange in writing on the same day as when 
the change occurs.
    The Exchange is proposing in Rule 606(e)(2) to add language 
regarding web-based and open mic communication applications because of 
the considerable advancement of technology and proliferation of the web 
and the absence of such language in the rule.
    The Exchange is proposing in Rule 606(e)(4) to state, instead of 
telephones may not include a call forwarding feature, that Floor 
Brokers may not use a call forwarding or open mic feature on the 
Options Floor and that the call forwarding or open mic feature must be 
disengaged at all times when the phone is on the Options Floor.
    The Exchange is also proposing in Rule 606(e)(7) to modernize the 
records retention requirement for telephone records so that, similar in 
relevant part to the requirement of another exchange, CBOE, and to 
other Exchange rules, and also to help with the Exchange's surveillance 
function, members must maintain logs of calls and chats for a period of 
not less than three years, the first two years in an easily accessible 
place.
    The Exchange believes that the proposed changes to Rules 606 will 
make it clearer and better and therefore beneficial to market 
participants. The Exchange believes also that the changes proposed to 
Rule 606 will protect investors and the public interest. As the 
Exchange has noted, the changes remove references to obsolete and 
unused concepts that are no longer needed, strengthen features and add 
features of the rule to make it more current, and strengthen the record 
retention requirements. Such proposed changes are in the public 
interest, and continue to serve to protect investors.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 
While the Exchange does not believe that the proposed non-controversial 
change is a burden on competition, or is competitive in nature, the 
Exchange believes that clearer, updated rules that do not refer to 
obsolete language and are in line with other rule concepts are always 
beneficial to market 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

    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, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A)

[[Page 25467]]

of the Act \22\ and Rule 19b-4(f)(6) thereunder.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
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    Phlx has requested that the Commission waive the 30-day operative 
delay so that it can expeditiously eliminate references to obsolete 
concepts and modernize Rule 606 to take into account current 
technology. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public. 
The Commission notes that, among other things, the proposed rule change 
will require Phlx members to maintain logs of calls and chats, 
including their cellular or cordless telephone records and logs of 
calls placed, for a period of not less than three years, the first two 
years in an easily accessible place. The waiver of the operative delay 
will allow Phlx to implement its maintenance and use of records rules, 
along with the above-discussed requirements regarding communication 
equipment, without undue delay. Therefore, the Commission designates 
the proposal operative upon filing.\23\
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    \23\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of this 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 will institute proceedings to 
determine whether the proposed rule change 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-2016-48 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-2016-48. 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; 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-2016-48 and should be 
submitted on or before May 19, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12) and (59).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-09896 Filed 4-27-16; 8:45 am]
 BILLING CODE 8011-01-P