Document ID: SEC-2020-1103-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2020-07-14T04:00Z

[Federal Register Volume 85, Number 135 (Tuesday, July 14, 2020)]
[Notices]
[Pages 42474-42476]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15108]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89247; File No. SR-Phlx-2020-35]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change to Temporarily 
Extend the Filing Requirements for Certain Written Reports Pursuant to 
Options 10, Section 7

July 8, 2020.
    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 July 6, 2020, 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 proposes to further extend the filing requirements for 
certain written reports pursuant to Options 10, Section 7, currently 
due June 30, 2020, to July 31, 2020.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, 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
    Given current and ongoing market conditions, the Exchange proposes 
to provide its members with continued temporary relief from filing 
certain supervision-related reports pursuant to Options 10, Section 7 
(Supervision of Accounts).
    In December 2019, COVID-19 began to spread and disrupt company 
operations and supply chains and impact consumers and investors, 
resulting in a dramatic slowdown in production and spending.\3\ By 
March 11, 2020, the World Health Organization characterized COVID-19 as 
a pandemic.\4\ To slow the spread of the disease, federal and state 
officials implemented social-distancing measures, placed significant 
limitations on large gatherings, limited travel, and closed non-
essential businesses. These measures have affected the U.S. markets.\5\ 
In the United States, Level 1 market wide circuit breaker halts were 
triggered on March 9, March 12, March

[[Page 42475]]

16, and March 18, 2020. While markets have seen significant declines, 
governments around the world are undertaking efforts to stabilize the 
economy and assist affected companies and their employees.\6\ While 
many state governments recently relaxed some social distancing measures 
and permitted the limited reopening of non-essential businesses, many 
State governments have now paused the reopening of non-essential 
businesses due to increased infection rates. Significant uncertainty 
remains.
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    \3\ See, e.g., Chairman Jay Clayton, Proposed Amendments to 
Modernize and Enhance Financial Disclosures; Other Ongoing 
Disclosure Modernization Initiatives; Impact of the Coronavirus; 
Environmental and Climate-Related Disclosure (Jan. 30, 2020), 
available at https://www.sec.gov/news/public-statement/clayton-mda-2020-01-30. (``Yesterday, I asked the staff to monitor and, to the 
extent necessary or appropriate, provide guidance and other 
assistance to issuers and other market participants regarding 
disclosures related to the current and potential effects of the 
coronavirus. We recognize that such effects may be difficult to 
assess or predict with meaningful precision both generally and as an 
industry- or issuer-specific basis. This is an uncertain issue where 
actual effects will depend on many factors beyond the control and 
knowledge of issuers.'').
    \4\ See WHO Director-General's Opening Remarks at the Media 
Briefing on COVID-19 (March 11, 2020), available at https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19---11-march-2020.
    \5\ ``Analysts showed that we saw the fastest `correction' in 
history (down 10% from a high), occurring in a matter of days. In 
the last week of February, the Dow fell 12.36% with notional trading 
of $3.6 trillion.'' See Phil Mackintosh, Putting the Recent 
Volatility in Perspective, available at https://www.nasdaq.com/articles/putting-the-recent-volatility-in-perspective-2020-03-05.
    \6\ See, e.g., the list of actions undertaken by the Board of 
Governors of the Federal Reserve System at https://www.federalreserve.gov/covid-19.htm. See also Families First 
Coronavirus Response Act, Public Law 116-127.
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    Amidst this continued and unprecedented market uncertainty, the 
Exchange sought to address potential challenges that members may face 
in timely meeting their obligations to submit to the Exchange annual 
supervision-related reports under Options 10, Sections 7(g) and (h) 
(``Supervision Reporting Requirements''), especially in light of 
unforeseen and uncertain demands on resources required to respond to 
COVID-19. Options 10, Section 7(g) requires each Exchange member that 
conducts a non-member customer business to submit to the Exchange a 
written report on the member's supervision and compliance effort during 
the preceding year and on the adequacy of the member's ongoing 
compliance processes and procedures. Each member that conducts a public 
customer options business is also required to specifically include its 
options compliance program in the report.\7\ The Section 7(g) report is 
due on April 1 of each year. Options 10, Section 7(h) requires that 
each member submit, by April 1 of each year, a copy of the Section 7(g) 
report to one or more control persons or, if the member has no control 
person, to the audit committee of its board of directors or its 
equivalent committee or group.\8\
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    \7\ The report shall include, but not be limited to, the 
information set out in Options 10, Section 7(g)(i)-(v).
    \8\ See Options 10, Section 7(h) for the meaning of the term 
``control person'' and requirements in the case of a control person 
that is an organization.
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    On each of March 31, 2020 and June 2, 2020, the Exchange filed a 
proposal to temporarily extend the filing requirements for these annual 
supervision-related reports from April 1, 2020 to June 1, 2020 and from 
June 1, 2020 to June 30, 2020, respectively.\9\ In light of the 
continued market uncertainty, the Exchange is again seeking to address 
potential challenges that certain members continue to face in timely 
meeting their obligations to submit to the Exchange annual supervision-
related reports. Accordingly, the Exchange proposes to provide 
additional, temporary relief for members from the Supervision Reporting 
Requirements by further extending the June 30, 2020 filing deadlines 
described above to July 31, 2020. The Exchange believes that this 
additional, temporary relief will permit those members who have been 
unable to submit their annual supervision-related reports to continue 
to focus on running their businesses and the health crisis caused by 
the COVID-19 pandemic, including its impact on their employees, 
customers, and communities.
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    \9\ See Securities Exchange Act Release No. 88827 (March 31, 
2020), 85 FR 19190 (April 6, 2020) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Temporarily Extend Certain 
Filing Requirement); Securities Exchange Act Release No. 88995 (June 
2, 2020), 85 FR 35149 (June 8, 2020) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Further Extend the Deadline 
for Certain Written Supervisory-Related Reports Pursuant to Options 
10, Section 7 (Supervision of Accounts).
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    The Exchange notes that in response to COVID-19, the Financial 
Industry Reporting Authority (``FINRA'') recently reissued temporary 
relief for member firms by, among other things, extending the deadline 
for submitting its supervision-related reports (FINRA Rule 3120 Report 
and FINRA Rule 3130 certification) from its second extension deadlines 
of June 30, 2020 \10\ to July 31, 2020.\11\ The Exchange notes, too, 
that at least one other options exchange that had twice previously 
extended the supervisory report deadlines from April 1 to June 1 and 
then from June 1 to June 30 for its members,\12\ also plans to submit a 
similar filing to, again, extend its deadlines through July 31, 2020. 
In light of these deadline extensions, the Exchange believes that a 
consistent regulatory approach is important and therefore that 
extending its deadline would avoid unnecessary confusion and added 
burden among entities that are members of both the Exchange and FINRA 
because the deadline to submit supervisory reports would remain 
uniform.
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    \10\ See FINRA Regulatory Notice 20-08 (March 9, 2020) available 
at https://www.finra.org/rules-guidance/notices/20-08.
    \11\ See FINRA Regulatory Notice 20-08, FAQs, Supervision (June 
29, 2020) available at https://www.finra.org/rules-guidance/key-topics/covid-19/faq#supe.
    \12\ See Securities Exchange Act No. 88528 (March 31, 2020), 85 
FR 19196 (April 6, 2020) (SR-CBOE-2020-029).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\14\ 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. As a result of continued uncertainty related to the ongoing 
spread of the COVID-19 virus, the U.S. exchanges are experiencing 
unprecedented market volatility. The proposed rule change would allow 
the Exchange to continue to provide temporary relief to those members 
who continue to be unable to comply with the Supervision Reporting 
Requirements, which were amended twice already--most recently to 
require members to provide written reports to the Exchange by June 30, 
2020, and further extend that deadline to July 31, 2020. The Exchange 
believes that this additional, temporary relief is necessary and 
appropriate in the public interest, and consistent with the protection 
of investors, given the unforeseen and uncertain challenges, including 
business continuity implementation and market volatility, posed by 
COVID-19 to members that must comply with the Supervision Reporting 
Requirements. The Exchange also believes that it is necessary and 
appropriate in the public interest, and consistent with the protection 
of investors, because FINRA has also re-extended twice the time for its 
members to file supervision-related reports, most recently from June 
30, 2020 to July 31, 2020.\15\ Additionally, as indicated above, at 
least one other options exchange that had previously extended the 
supervisory report deadlines twice, from April 1 to June 1 and again 
from June 1 to June 30 for its members,\16\ plans to submit a similar 
filing to re-extend its deadlines through July 31, 2020. Extending the 
deadline, therefore, will ensure that those entities that are members 
of both FINRA and the Exchange have a uniform deadline to submit their 
supervisory reports.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ See supra note 11.
    \16\ See supra note 12.
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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 is not 
designed to address any competitive issues but rather to provide 
temporary relief for all

[[Page 42476]]

members that are required to comply with the Supervision Reporting 
Requirements.

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) of the Act \17\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \19\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \20\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. The 
Commission notes that the proposed rule change would allow the 
Exchange, in light of the COVID-19 pandemic, to provide temporary 
relief for members by further extending the deadline for written 
reports pursuant to the Supervision Reporting Requirements from June 
30, 2020, to July 31, 2020. The Commission believes that waiver of the 
30-day operative delay is consistent with the protection of investors 
and the public interest. Accordingly, the Commission hereby waives the 
operative delay and designates the proposed rule change operative upon 
filing.\21\
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission also 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 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.

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-2020-35 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-2020-35. 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 website (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 website 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-2020-35 and should be submitted on 
or before August 4, 2020.

    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15108 Filed 7-13-20; 8:45 am]
BILLING CODE 8011-01-P