Document ID: SEC-2010-1411-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2010-09-15T04:00Z

[Federal Register: September 15, 2010 (Volume 75, Number 178)]
[Notices]               
[Page 56150-56152]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15se10-123]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62867; File No. SR-Phlx-2010-122]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Clarify 
What Information Must Be Entered Into the Exchange's Options Floor 
Broker Management System

September 8, 2010.
    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 September 2, 2010, NASDAQ OMX 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 Phlx 
Rule 1063 (Responsibilities of Floor Brokers) and Phlx Options 
Procedure Advice C-2 (Options Floor Broker Management System) \3\ to 
clarify what information must be entered into the Exchange's Options 
Floor Broker Management System.
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    \3\ Options Floor Procedure Advices (``OFPAs'' or ``Advices'') 
generally correspond to Exchange rules. OFPA C-2 is a corresponding 
Advice to Rule 1063, which deals, in part, with the Options Floor 
Broker Management System and is part of the Exchange's minor rule 
plan (``MRP'' or ``Minor Rule Plan''). The Exchange's Minor Rule 
Plan consists of Advices with preset fines, pursuant to Rule 19d-
1(c) under the Act. 17 CFR 240.19d-1(c). See Securities Exchange Act 
Release No. 50997 (January 7, 2005), 70 FR 2444 (January 13, 2005) 
(SR-Phlx-2003-40) (approval order establishing Floor Broker 
Management System in OFPA C-2 and Rule 1063).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx .cchwallstreet.com/NASDAQOMXPHLX/
Filings/, 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 proposal is to amend Phlx Rule 1063 and Options 
Floor Procedure Advice C-2 to clarify that information entered into the 
Exchange's Options Floor Broker Management System must include order 
receipt time.
    The Exchange's Options Floor Broker Management System (``FBMS'') 
\4\ was designed to establish an electronic audit trail for equity, 
equity index and U.S. dollar-settled foreign currency options \5\ 
orders represented by Floor Brokers \6\ on the Exchange.\7\ The Options 
Floor Broker Management System is found in Rule 1063(e) and 
corresponding Advice C-2 and states that either a Floor Broker or an 
employee of a Floor Broker has to record all options orders represented 
by such Floor Broker onto the electronic FBMS (as described in Rule 
1080,

[[Page 56151]]

Commentary .06) contemporaneously upon receipt of an order and prior to 
the representation of such an order in the trading crowd.
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    \4\ Rule 1080, Commentary .06 states, in relevant part: The 
Options Floor Broker Management System is a component of AUTOM 
designed to enable Floor Brokers and/or their employees to enter, 
route and report transactions stemming from options orders received 
on the Exchange. The Options Floor Broker Management System also is 
designed to establish an electronic audit trail for options orders 
represented and executed by Floor Brokers on the Exchange, such that 
the audit trial provides an accurate, time-sequenced record of 
electronic and other orders, quotations and transactions on the 
Exchange, beginning with the receipt of an order by the Exchange, 
and further documenting the life of the order through the process of 
execution, partial execution, or cancellation of that order. Rule 
1080(a) states, in relevant part: AUTOM is the Exchange's electronic 
order delivery and reporting system, which provides for the 
automatic entry and routing of Exchange-listed equity options, index 
options and U.S. dollar-settled foreign currency options orders to 
the Exchange trading floor.
    \5\ U.S. dollar-settled foreign currency options traded on the 
Exchange are also known as World Currency Options (``WCO'') or 
Foreign Currency Options (``FCO'').
    \6\ Floor Broker is defined in Rule 1060 as: An individual who 
is registered with the Exchange for the purpose, while on the 
Options Floor, of accepting and executing options orders received 
from members and member organizations.
    \7\ See Securities Exchange Act Release No. 50997 (January 7, 
2005), 70 FR 2444 (January 13, 2005) (SR-Phlx-2003-40) (approval 
order establishing FBMS in Rule 1063 and OFPA C-2, and adding 
definition of FBMS in Commentary .06 to Rule 1080).
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    Rule 1063(e) and OFPA C-2 specify what information must be entered 
into FBMS (the ``FBMS information''). The FBMS information currently 
required to be entered includes, among other things, the options symbol 
and the order type (i.e., customer, firm, broker-dealer, professional), 
but not the order receipt time. Rule 1063(f), as well the second 
paragraph of corresponding OFPA C-2, states that Floor Brokers or their 
employees shall enter FBMS information for FLEX \8\ options into the 
Exchange's electronic audit trail in the same electronic format as the 
required by Rule 1063(e) and OFPA C-2 for equity, equity index and U.S. 
dollar-settled foreign currency options. In that per OFPA C-2 the 
Options Floor Broker Management System is part of the Exchange's Minor 
Rule Plan,\9\ the Advice sets forth a fine schedule for failure to 
enter FBMS information.\10\
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    \8\ FLEX options are flexible exchange-traded index, equity, or 
currency option contracts that provide investors the ability to 
customize basic option features including size, expiration date, 
exercise style, and certain exercise prices. FLEX options may have 
expiration dates within five years. See Rule 1079. FLEX currency 
option contracts traded on the Exchange are also known as FLEX WCO 
or FLEX FCO contracts.
    \9\ See supra note 3.
    \10\ The OFPA C-2 fine schedule is as follows:
    FINE SCHEDULE (Implemented on a two-year calendar basis): 1st 
Occurrence--$500.00; 2nd Occurrence--$1,000.00;--3rd Occurrence--
$2,000.00; 4th Occurrence and Thereafter--Sanction is discretionary 
with the Business Conduct Committee.
    The Exchange does not propose any changes in this filing to the 
Fine Schedule.
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    The Exchange notes that the time that an order is entered is being 
captured by the system in the audit trail created via the FBMS per Rule 
1063(e) and OFPA C-2, but is not specifically required in the rule and 
Advice as currently written. The Exchange is therefore proposing to 
change Rule 1063 and OFPA C-2 to require entry of order receipt time 
information into the FBMS, thereby making this information requirement 
a part of the Minor Rule Plan reflected in OFPA C-2 and conforming the 
Advice and the rule.
    Specifically, the Exchange proposes to state in Rule 1063(e)(i) and 
OFPA C-2 that Floor Brokers or their employees must record order 
receipt time in conjunction with order type in FBMS. Proposed Rule 
1063(e)(i) and OFPA C-2 as amended will each state, in relevant part: 
The following specific information with respect to orders represented 
by a Floor Broker shall be recorded by such Floor Broker or such Floor 
Broker's employees: (i) The order type (i.e., customer, firm, broker-
dealer, professional) and order receipt time; (ii) the option symbol; 
(iii) buy, sell, cross or cancel; \11\ (iv) call, put, complex (i.e., 
spread, straddle), or contingency order as described in Rule 1066; (v) 
number of contracts; (vi) limit price or market order or, in the case 
of a complex order, net debit or credit, if applicable; (vii) whether 
the transaction is to open or close a position; and (viii) The Options 
Clearing Corporation (``OCC'') clearing number of the broker-dealer 
that submitted the order (collectively, the ``required 
information'').\12\
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    \11\ To ensure conformity of Rule 1063 and Advice C-2, which 
both contain the list of specific information, the exchange proposes 
to insert the word ``cross'' into Advice C-2.
    \12\ The Exchange notes also that Rule 17a-3(a)(7) pursuant to 
the Act states, in relevant part, that broker-dealers that transact 
a business in securities through members of a national securities 
exchange shall make and keep current the books and records relating 
to its business including, but not limited to, among other things: A 
memorandum of each purchase and sale for the account of the member, 
broker, or dealer showing the price and, to the extent feasible, the 
time of execution; and, in addition, where the purchase or sale is 
with a customer other than a broker or dealer, a memorandum of each 
order received, showing the time of receipt. 17 CFR 240.17a-3.
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    The Exchange believes that the proposal would codify current 
practice, ensure that violations of FBMS in terms of failure to enter 
order receipt time are part of the Exchange's Minor Rule Plan, and 
harmonize Rule 1063(e) and OFPA C-2.\13\
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    \13\ The Exchange has filed a proposal to make unrelated changes 
to Rule 1063 and OFPA C-2 at SR-Phlx-2010-116 that we believe do not 
impact the changes proposed herein. We would update this rule change 
proposal should it become necessary in light of SR-Phlx-2010-116.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \15\ 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, and to remove impediments to and perfect the mechanisms of 
a free and open market and a national market system. In particular, the 
Exchange proposes to codify current practice, ensure that violations of 
the Options Floor Broker Management System in terms of failure to enter 
order receipt time are part of the Exchange's Minor Rule Plan, and 
harmonize Rule 1063(e) and OFPA C-2.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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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.

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: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Phlx has given the 
Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date on which the 
Exchange filed the proposed rule change. See 17 CFR 240.19b-
4(f)(6)(iii).
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    At any time within 60 days of the filing of such 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2010-122 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary,

[[Page 56152]]

Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-1090.
All submissions should refer to File Number SR-Phlx-2010-122. 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,\18\ 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-2010-122 and should be submitted on or before October 6, 2010.
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    \18\ The text of the proposed rule change is available on 
Exchange's Web site at http://nasdaqtrader.com/
micro.aspx?id=PHLXfilings, on the Commission's Web site at http://
www.sec.gov, at Phlx, and at the Commission's Public Reference Room.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-22945 Filed 9-14-10; 8:45 am]
BILLING CODE 8010-01-P