Document ID: SEC-2015-0507-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2015-03-25T04:00Z

[Federal Register Volume 80, Number 57 (Wednesday, March 25, 2015)]
[Notices]
[Pages 15831-15834]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-06711]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74533; File No. SR-Phlx-2015-023]

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

March 19, 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 12, 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 50 entitled ``Failure to Pay 
Dues, Fees and Other Charges;'' 53, entitled ``Liability for Dues Until 
Transfer or Military Service;'' 99 entitled ``Back-Up Trading 
Arrangements;'' and 443 entitled ``Employees.'' The Exchange proposes 
to delete Rules 51 entitled ``Enforcement of Capital Funding Fees;'' 54 
entitled ``Service Fee;'' 55 entitled ``Claims by Formed or Deceased 
Members;'' and 442 entitled ``Communications.''
    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 Phlx 
rules related to the payment of fees to harmonize the Exchange's 
Rulebook text and modernize Exchange rules. The Exchange proposes to 
amend rule text, make minor technical amendments to certain rules and 
to delete other rules. Each proposed rule change is discussed in 
greater detail below.
    Amendment to Certain Exchange Rules
    The Exchange proposes to amend Rule 50, entitled ``Failure to Pay 
Dues, Fees and Other Charges.'' The Exchange proposes to conform Rule 
50(a) to NASDAQ Stock Market LLC (``Nasdaq'') Rule 9553 and NASDAQ OMX 
BX, Inc. (``BX'') Rule 9553(a). The Exchange is proposing to adopt rule 
text similar to Nasdaq Rule 9553 and BX Rule 9553 in place of the 
current rule text in Rule 50(a), (d) and (f). The Exchange is also 
proposing to modify the headers to match those of Nasdaq Rule 9553 and 
BX Rule 9553. The word ``termination'' in the Phlx rule is replaced 
with the word ``cancellation or bar.'' The Exchange's amendments are 
not substantive in nature. The amendments

[[Page 15832]]

seek to align these rules with Nasdaq rules.
    The Exchange proposes to amend Rule 53, entitled ``Liability for 
Dues Until Transfer or Military Service'' to delete the current rule 
text and adopt the language in Nasdaq IM-1002 and BX IM-1002-2. This 
rule allows associated persons to be placed on inactive status, thereby 
preserving their registration, while serving in the Armed Forces of the 
United States.\3\ The current rule describes the liability for dues of 
a member that is active in the military or naval service. The current 
rule notes that the member's liability continues unless the permit is 
transferred or the Board of Directors waives dues and assessments. The 
proposed rule text permits a member serving in the military to retain 
eligibility to receive transaction related compensation, provided they 
do not perform the duties of a registered person while inactive. The 
inactive military member would not be subject to fees or be required to 
complete Regulatory or Firm Elements requirements. The rule provides 
similar relief for sole proprietorships that are active in the Armed 
Forces. Finally, the rule affords relief to persons currently not 
registered with a member or member organization and subsequently is 
active in the Armed Forces within two years after the date a person 
ceases to be registered with a member or member organization with 
respect to registration requirements provided notice is given within a 
specified time.\4\ If a person placed upon inactive status while 
serving in the Armed Forces of the United States ceases to be 
registered with a member or member organization, Phlx will defer the 
lapse of registration requirements during the pendency of his or her 
active service in the Armed Forces of the United States.
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    \3\ See Nasdaq IM-1002 and BX IM-1002-2.
    \4\ Phlx must be properly notified of the person's period of 
active military service within 90 days following his or her 
completion of active service or upon his or her re-registration with 
a member or member organization, whichever occurs first. The 
deferral will terminate 90 days following the person's completion of 
active service in the Armed Forces of the United States. 
Accordingly, if such person does not re-register with a member or 
member organization within 90 days following his or her completion 
of active service in the Armed Forces of the United States, the 
amount of time in which the person must become re-registered with a 
member or member organization without being subject to the 
qualification examination requirements shall consist of the standard 
two-year period provided in Phlx Rules 611, 613, and 3228 reduced by 
the period of time between the person's Phlx is properly notified of 
the person's period of active military service within 90 days 
following his or her completion of active service or upon his or her 
re-registration with a member or member organization, whichever 
occurs first. The deferral will terminate 90 days following the 
person's completion of active service in the Armed Forces of the 
United States.
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    Nasdaq based its adoption of the rule on a National Association of 
Securities Dealers (hereinafter ``FINRA'') rule. FINRA tolled the two-
year licensing expiration provisions under its rule for a person 
previously registered with a member who commences active military duty 
within two years after he or she has ceased to be registered with the 
member, and also tolled the expiration provisions for a person placed 
upon ``inactive'' status, who, while serving in the Armed Forces of the 
United States, ceases to be registered with a member.\5\
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    \5\ See Securities Exchange Act Release No. 53182 (January 26, 
2006), 71 FR 5391 (February 1, 2006) (SR-NASD-2005-135).
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    NASD's Rule IM-1000-2 relieves active duty professionals from 
continuing education requirements. With respect to the Firm Element 
requirement of continuing education, FINRA provides that only persons 
who have ``direct contact with customers'' in the conduct of securities 
activities are subject to the Firm Element requirement.\6\ active duty 
professionals are excluded from the Firm Element requirement because 
they do not have contact with customers. FINRA's rule expressly states 
that active duty professionals are not required to complete either of 
the Regulatory or Firm Elements of the continuing education 
requirements during the pendency of such inactive status.\7\ The 
proposed rule change will harmonize the Phlx rule with the Nasdaq and 
BX rules as well as FINRA's rule.
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    \6\ See FINRA Rule 1250(b)(1).
    \7\ Id.
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    The Exchange proposes to amend Rule 99, entitled ``Back-Up Trading 
Arrangements,'' to make technical conforming amendments to the rule 
text. This rule change is not substantive in nature; rather, the rule 
text amendments seek to conform the word usage within the text of this 
rule.
    The Exchange proposes to amend Rule 443, entitled ``Employees'' by 
renaming the rule ``Trading Floor Admittance'' and making minor rule 
amendments to clarify the rule text. Rule 443 states, '' [n]o employee 
of a member or member organization shall be admitted to the floor 
unless he is registered with and approved by the Exchange, which may in 
its discretion require the payment of a fee with respect to each 
employee so approved, and may at any time in its discretion withdraw 
any approval so given.'' The Exchange proposes to reference Options 
Regulation 5 regarding non-member visitors within this rule to add 
clarity to admittance to the options trading floor for non-members. The 
other amendments to this rule are technical in nature. There are no 
substantive changes proposed to current Phlx Rule 443.
Deleted Rules
    The Exchange proposes to delete Rule 51 entitled ``Enforcement of 
Capital Funding Fees.'' This rule is no longer applicable today. This 
rule permits the Exchange to take certain specified measures if an 
owner of a membership fails to pay (or have paid on its behalf) any 
capital funding fee imposed by the Exchange when due. The rule 
specifies what enforcement action may be taken against an owner for 
failure to pay any capital funding fee imposed by the Exchange. The 
rule delineates the remedies that shall be taken by the Board if the 
capital funding fee is not paid and allows for a variety of remedies 
ranging from the imposition of a late fee to reversion and sale by the 
Exchange of the equitable title to a membership. The remedies are set 
forth in such a way as to apply the less onerous remedies (i.e., like 
fees) first and the more serious remedies (i.e., suspension of right to 
trade or lease and reversion of membership) only after the Exchange has 
not received payment within 90 days after the date of the original 
invoice (or such longer period for which a lease agreement is in effect 
as a result of the election by a lessee to continue paying the capital 
funding fee). By allowing this graduated scale of remedies, the owners 
are put on notice as to what remedies will be imposed if payment is not 
received in a timely manner, with the more serious remedies being 
applied after a longer period of time. In addition, the rule delineates 
the Board's responsibilities and authority for handling instances in 
which an owner fails to pay the capital funding fee when due.\8\
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    \8\ See Securities and Exchange Commission 44872 (September 28, 
2001), 66 FR 51084 (October 5, 2001) (SR-Phlx-99-52).
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    The rule was designed to protect innocent lessees from being 
unexpectedly dispossessed from their memberships and trading rights in 
the event of a nonpayment by their lessors. This was important in the 
days when Phlx had seats, prior to demutualization; there are no longer 
any seats, owners or lessors. Today permits are issued to members and 
member organizations. Permits provide trading rights \9\ today and the 
Exchange collects fees via direct debit.\10\ This rule is

[[Page 15833]]

outdated and the Exchange proposes to remove it from the Rulebook.
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    \9\ See Rule 908.
    \10\ See Rule 909.
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    The Exchange also proposes to delete Rule 54 entitled ``Service 
Fee'' because the rule is outdated. The rule provides, ``[m]embers and 
member organizations who are not also members of a subsidiary of the 
Exchange but who use or benefit from the facilities or services of such 
subsidiary, may be required by the Board of Directors to pay fees or 
charges to the Exchange for such use or benefit; provided, however, 
that such fees or charges may be imposed only if they are similar in 
structure and rate to those imposed by such subsidiary on its own 
members using or benefiting from the same facilities or services.'' The 
Exchange does not have any active subsidiaries today.\11\ This rule is 
therefore not applicable and should be deleted from the Rulebook. The 
Exchange also proposes to remove the reference to Rule 54 from Rule 
3202, entitled ``Application of Other rules of the Exchange.'' Rule 
3202 adopts certain rules into the equity rules. The Exchange proposes 
to remove the reference to Rule 54 from Rule 3202 as well.
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    \11\ Phlx's only subsidiary is the Stock Clearing Corporation of 
Philadelphia. This subsidiary is inactive.
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    The Exchange proposes to delete Rule 55, entitled ``Claims by 
Formed or Deceased Members.'' This rule states, ``[w]hen a member is in 
debt to another member the death of the creditor member shall not 
affect the rights of such creditor or member, his organization or 
estate in respect of such debt.'' As noted above, the Exchange issues 
permits today for access to trading on the Exchange. At the time, prior 
to demutualization, when the Exchange issued seats, those seats could 
be leased. This is no longer the case. Members are not indebted to 
other members in the same manner today. This rule is no longer 
applicable and should be removed from the Rulebook. The Exchange also 
proposes to remove the reference to Rule 55 from Rule 3202, entitled 
``Application of Other Rules of the Exchange.'' Rule 3202 adopts 
certain rules into the equity rules. The Exchange proposes to remove 
the reference to Rule 55 from Rule 3202 as well.
    The Exchange proposes to delete Rule 442, entitled 
``Communications.'' This rule provides that ``[c]ommunications shall 
not be read to the Exchange nor posted on the bulletin board without 
the consent of the Secretary.'' This rule is outdated. Today, the 
Exchange uses electronic means such as email, electronic alerts and its 
Web site to issue communications. There is no longer a bulletin board 
on the Exchange's trading floor as there was when the rule was enacted. 
The Exchange proposes removing this outdated rule from the Rulebook.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \13\ 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 the text of its rules and 
modernize the Phlx Rulebook. The Exchange is updating certain rules in 
order to ensure consistency in the rule text. The Exchange is proposing 
to delete other rules because they are outdated.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change to Rule 53 seeks to harmonize this rule 
with Nasdaq and BX Rules. The proposed new rules addresses not only 
fees, which are addressed by the current rule, but also registration, 
compensation, Regulatory and Firm Element requirements, sole proprietor 
members and formerly registered persons. The proposed rule states that 
a registered person placed on inactive status shall not be included 
within the scope of fees, whereas the Phlx rule indicates a member 
serving in the military in active status is liable for dues to the 
Exchange. The Exchange desires to conform the treatment of members 
serving in the military to that of other exchanges. The NASDAQ, BX and 
NASD rules provide inactive members serving in the military with a 
reprieve from certain obligations registration and other 
requirements.\14\ The Exchange desires to adopt a similar treatment of 
these members, which it believes will foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities.
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    \14\ See Nasdaq IM-1002, BX IM-1002-2 and NASD IM-1002-2.
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    The remaining rule amendment proposals either modernize the rule 
text and add clarity or delete outdated rule text. The Exchange 
believes that these proposals will benefit members and member 
organizations by bringing additional clarity to the Rulebook.

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 conforming the text of certain rules throughout the rule 
and also deleting certain unnecessary rules. These rule amendments do 
not place an undue burden on competition but rather bring clarity to 
the Rulebook.
    The proposed amendments to Rule 53 will provide members with a rule 
similar to rules on Nasdaq and BX. The Exchange's amendment will 
conform the treatment of members serving in the military to that of 
other exchanges. The Exchange believes that adopting the Nasdaq and BX 
rules will provide members and member organizations with processes 
similar to other self-regulatory organizations and therefore does not 
create an undue burden on either intra-market or inter-market 
competition.

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 \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \16\ 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

[[Page 15834]]

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-2015-023 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2015-023. 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 20549-1090, on official business days between the hours 
of 10:00 a.m. and 3:00 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-2015-023, and should be submitted on or before April 15, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-06711 Filed 3-24-15; 8:45 am]
 BILLING CODE 8011-01-P