Document ID: SEC-2011-1707-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-11-08T05:00Z

[Federal Register Volume 76, Number 216 (Tuesday, November 8, 2011)]
[Notices]
[Pages 69314-69316]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28829]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65666; File No. SR-Phlx-2011-118]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change Relating to Transfer of Positions Off 
the Floor

November 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 October 20, 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

[[Page 69315]]

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, pursuant to Section 19(b)(1) of the Act \3\ and Rule 
19b-4 thereunder,\4\ proposes a new Exchange Rule 1058 entitled 
``Transfer of Positions'' to provide a process by which members and 
member organizations may transfer option positions in limited 
circumstances.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
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    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 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 provide members and 
member organizations a mechanism in which to transfer option positions 
in certain specified circumstances. The Exchange is proposing to amend 
its Rules to adopt a new Exchange Rule 1058, entitled ``Transfer of 
Positions.'' \5\ The purpose of this Rule is to address narrowly-
defined transfers of option positions between accounts, individuals, or 
entities and codify a current policy at the Exchange for off the floor 
transfers.
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    \5\ Exchange Rule 1058 is currently reserved. The Exchange 
proposes to delete the word ``Reserved'' and insert this new Rule in 
its place.
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    Currently, Exchange Rules do not specifically address transfers of 
option positions between accounts, individuals or entities. The 
Exchange, however, has made exceptions to allow off the floor transfers 
in situations similar to those permitted on other exchanges. The 
proposed rule would formalize the Exchange's policies with respect to 
off the floor transfers of options positions in certain limited 
circumstances.
    Specifically, the Exchange would permit off the floor transfers of 
options listed on the books of member or member organization only if 
such transfer involves one or more of the following events: (i) The 
dissolution of a joint account in which the remaining member or member 
organization assumes the positions of the joint account; (ii) the 
dissolution of a corporation or partnership in which a former nominee 
of that corporation or partnership assumes the positions; (iii) 
positions transferred as part of a member or member organization's 
capital contribution to a new joint account, partnership, or 
corporation; (iv) the donation of positions to a not-for-profit 
corporation; (v) the transfer of positions to a minor under the Uniform 
Gifts to Minors Act; (vi) a merger or acquisition resulting in a 
continuity of ownership or management; or (vii) consolidation of 
accounts within a member or member organization. The members and member 
organizations would be required to provide the Exchange with prior 
written notice of the transfer, specifically the positions to be 
transferred and the reason for the transfer.
    The proposed Exchange Rule 1058 provides that members and member 
organizations must transfer positions pursuant to this Rule at the same 
prices that appear on the books of the transferring member or member 
organization,\6\ and the transfer must indicate the date when the 
original trade was made. In the course of transferring positions, no 
position shall net itself against another position.\7\ Each member or 
member organization that is a party to a transfer of positions would be 
required to make and retain records which include: (i) The nature of 
the transaction; (ii) the name of the counter-party; and (iii) any 
other information required by the Exchange.\8\
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    \6\ The same cost basis would apply to the positions once they 
have been transferred.
    \7\ Long positions and short positions will not be permitted to 
``net'' against each other. For example, if a member desired to 
transfer 100 long calls into another account that contained 100 
short calls of the same options series along with other positions, 
and the transfer met one of the above permitted exceptions, that 
transfer of the offsetting options series could not occur pursuant 
to this Rule because those positions would net against each other 
resulting in a closing of the position. The member would be required 
to trade out of that position as per the Exchange's Rules, either on 
the floor or electronically.
    \8\ Records should be maintained in accordance with the member 
or member organization's books and records policy and in conformity 
with Rules 17a-3 and 17a-4 of the Act.
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    The Exchange believes that permitting off the floor transfers in 
very limited circumstances such as where there is no change is 
beneficial ownership, to contribute to a non-profit corporation, to 
transfer to a minor or a transfer by operation of law is reasonable to 
allow a member or member organization to accomplish certain goals 
efficiently. The Exchange is seeking to memorialize its current policy 
regarding off the floor transfers in order to allow its members to 
transfer positions in the same manner as on other exchanges.\9\
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    \9\ The Chicago Board Options Exchange, Incorporated (``CBOE'') 
and NYSE Arca, Inc. (``NYSE Arca'') permit members to effect off-
floor transfers in certain circumstances. See CBOE Rule 6.49A. See 
also NYSE ARCA Rule 6.78.
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    The above-referenced exceptions would allow the Exchange to permit 
transfers in situations involving dissolutions of entities or accounts, 
for purposes of donations, mergers or by operation of law. For example, 
a member that is undergoing a structural change and a one-time movement 
of positions may require a transfer of positions or a member is leaving 
a firm that will no longer be in business may require a transfer of 
positions to another firm. Also, a member may require a transfer of 
positions to make a capital contribution. The above-referenced 
circumstances are situations where the transferor continues to maintain 
some ownership interest or manage the positions transferred.
    To date, the Exchange has permitted such off-the floor transfers in 
limited circumstances and this Rule seeks to codify the specific 
circumstances where off the floor transfers of positions would be 
permitted.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \11\ 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, by providing an accommodation for members and member 
organizations who desire to transfer options positions. The Exchange 
believes that establishing a new Rule which provides clear

[[Page 69316]]

guidelines on when such off the floor transfers would be permissible 
would assist members and member organizations seeking to transfer 
positions and provide notification to the Exchange.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The primary reason that members prefer to transfer positions as 
opposed to trading out of them is that transferring positions affords a 
reduction in administrative overhead and cost. In the typical 
situation, a member is undergoing a structural change and a one-time 
movement of positions offers efficiency in that process. The Exchange 
believes that this new Exchange Rule 1058 would allow members and 
member organizations the opportunity to efficiently and effectively 
transfer their option positions in limited situations off the floor.
    The Exchange believes that the proposed rule creates an orderly 
process for allowing such transfers. The Rule serves to protect 
investors and the public interest because the proposed Rule permits 
transfers off-floor only in limited instances.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) As the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-2011-118 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-2011-118. 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 
a.m. and 3 p.m. Copies of such 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-2011-118 and should be 
submitted on or before November 29, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28829 Filed 11-7-11; 8:45 am]
BILLING CODE 8011-01-P