Document ID: SEC-2014-0247-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2014-02-10T05:00Z

[Federal Register Volume 79, Number 27 (Monday, February 10, 2014)]
[Notices]
[Pages 7726-7728]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02745]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71470; File No. SR-Phlx-2014-07]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Membership Process

February 4, 2014.
    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 January 30, 2014, 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 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 amend Exchange Rule 910 to permit an 
expedited application process for firms that are already approved 
members of The NASDAQ Stock Market, LLC (``NASDAQ'') or NASDAQ OMX BX, 
Inc. (``BX'').
    The text of the proposed rule change is attached as Exhibit 5,\3\ 
available on the Exchange's Web site at 
nasdaqomxphlx.cchwallstreet.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.
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    \3\ The Commission notes that the text of the proposed rule 
change is attached to the filing as Exhibit 5, not to this Notice.
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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 amend a PHLX 
membership rule and provide for an expedited review of applicants 
seeking to become PHLX member organizations that have already 
successfully undergone a NASDAQ or BX membership evaluation and are 
currently members in good standing of NASDAQ or BX. Currently, PHLX 
Rule 910 provides the qualifications for a Member Organization, 
including the required terms and conditions. The Exchange is proposing 
to modify Rule 910 in order to recognize the new member review 
previously conducted by member regulation when a PHLX applicant has 
already been approved for membership on NASDAQ or BX.\4\ The 
fundamental membership qualifications are standard across all three 
domestic exchanges owned by The NASDAQ OMX Group \5\ and are all 
reviewed by NASDAQ member regulation as part of the new member 
application process. These membership requirements include but are not 
limited to: Registration as a Broker Dealer with the United States 
Securities and Exchange Commission, maintaining a pre-determined 
minimum net capital, qualification of associated persons, maintaining 
sufficient written supervisory procedures. These and other reviews are 
considered in each new member review conducted by NASDAQ member 
regulation or by FINRA on behalf of NASDAQ.\6\
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    \4\ NASDAQ and BX are filing separate rule changes which would 
recognize the membership review conducted by PHLX.
    \5\ NASDAQ, BX, and PHLX.
    \6\ FINRA reviews the following membership applications for 
NASDAQ and BX pursuant to a Regulatory Services Agreement: Waive-in 
applications for FINRA members that seek to become NASDAQ members; 
applications for NASDAQ applicants that are not FINRA members; 
applications for applicants that are simultaneously applying for 
FINRA and NASDAQ Membership; applications for NASDAQ Options Market 
Participation; applications for NASDAQ OMX BX; NASDAQ and BX 
membership applications.
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    The Exchange is proposing to amend Rule 910 to align PHLX rules 
with the expedited membership processes that already exist on other 
exchanges affiliated with PHLX. Specifically, NASDAQ Rule and BX Rule 
1013(a)(5)(C) both allow for an expedited membership review process for 
applicants that are already approved on an affiliated exchange.\7\ The 
membership review for firms that submit a Waive-In Membership 
Application largely relies [sic] the information previously supplied to 
NASDAQ and simply reviews any additional new information which has 
changed or has not yet been evaluated by NASDAQ or by FINRA on behalf 
of NASDAQ as part of the membership determination. However, the 
Exchange notes that there are three differences from NASDAQ Rule 
1013(a)(5)(C) and BX Rule 1013(a)(5)(c) [sic] and the proposed rule. 
The first is that NASDAQ and BX also allow FINRA members to qualify for 
expedited registration. PHLX

[[Page 7727]]

does not plan to include FINRA members in the expedited process.\8\ The 
second is that both NASDAQ and BX have a Short Form Membership 
application for firms that are already members of the other exchange. 
PHLX will still require applicants to complete an Organization 
Membership Application, which must be signed by the Authorized 
Applicant, the Executive Representative and the Qualifying Permit 
Holder but will not, as part of the rule change, require the submission 
of duplicative documentation. The final difference is that the proposed 
amended rule will still require applicants that require access to the 
physical trading floor demonstrate knowledge of floor rules and 
procedures through an on-floor examination.
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    \7\ For example, NASDAQ rule 1013(a)(5)(C) states: An applicant 
that is an approved FINRA or NASDAQ OMX BX, Inc. (``BX'') member 
shall have the option to apply to become a Nasdaq member and to 
register with Nasdaq all associated persons of the firm whose 
registrations with the firm are approved with FINRA or BX in 
categories recognized by Nasdaq rules through an expedited process 
by submitting a Waive-in Membership Application Form and a Nasdaq 
Membership Agreement. NASDAQ and BX will file subsequent rule 
changes to recognize the membership review conducted on behalf of 
PHLX.
    \8\ NASDAQ and BX recognize the FINRA membership approval 
because the membership rules are the same and are covered under a 
17d-2 agreement. PHLX does not plan to recognize FINRA's approval 
because of the slight differences in membership rules but will 
review this issue if PHLX membership rules are modified and become 
more closely aligned with NASDAQ and BX rules.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ 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. NASDAQ's membership 
department on behalf of PHLX, which performs similar functions for 
NASDAQ and BX, reviews: Applicant business plans, clearing 
arrangements, FOCUS reports, organizational charts, and Written 
Supervisory Procedures for firms applying to any NASDAQ OMX market.\11\ 
These fundamental documents are required for membership to FINRA, as 
well as for membership on other national securities exchanges.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ FINRA conducts the new member application review for NASDAQ 
and BX pursuant to a 17d-2 agreement and Regulatory Services 
Agreement. These application reviews are administered by FINRA and 
subject to NASDAQ's final review and decision.
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    PHLX believes that the proposed rule change is consistent with 
Section 6(b)(5) of the Act \12\ because it would eliminate the 
duplicate review for prospective PHLX firms that have already been 
reviewed and approved for membership by NASDAQ or BX and would require 
firms only to provide additional information if there had been a change 
in status from when the firm previously applied to become a member on a 
NASDAQ OMX exchange. As a consequence, the proposed change will both 
bring efficiency to the Exchange's membership review process and reduce 
the burden on applicants that have already been approved for membership 
on another NASDAQ OMX domestic market by reducing the duplicative 
information and documentation required to be provided in the process. 
As a further consequence, the Exchange will be able to focus its 
regulatory efforts on reviewing any changes or new information that may 
affect the applicant's eligibility for Exchange membership. Applicants 
must attest that the information previously provided as part of a new 
membership review is complete and accurate. Additionally, the proposed 
expedited review process replicates a process that is currently 
available to members of NASDAQ and BX under their rules, with the 
additional requirement that applicants must complete an Organization 
Membership Application, and to the extent access to the trading floor 
is sought, pass an on-floor examination. As discussed, PHLX would 
continue to apply additional scrutiny to applicants in instances where 
PHLX would be the Designated Examining Authority (``DEA'') or where the 
applicant's proposed business activities required additional 
review.\13\ PHLX is required to conduct additional examinations for 
firms that which [sic] PHLX is the DEA which includes examining firms 
for compliance with financial responsibility requirements imposed by 
the Securities Exchange Act of 1934 and by SEC or SRO rules.
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    \12\ Supra note 8 [sic].
    \13\ Prospective members seeking to conduct business on the PHLX 
trading floor requires [sic] a particularized understanding of the 
PHLX trading floor rules. Additionally, applicants for which PHLX 
will be the DEA are required to file the following material; Branch 
Office Disclosure Form, FOCUS filings, Verification of an error 
account, Proprietary Account of Introducing Broker Dealer Agreement, 
Confirmation of U4 registrations, Copy of Joint Back Office 
Agreements (if applicable), Notification of Applicant's intent to 
use Electronic Storage Media for maintaining and storing records.
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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 expedited review of 
membership for PHLX applicants will not impose any burden on 
competition and will remove unnecessary burdens that currently exist 
for NASDAQ and BX firms when seeking PHLX membership. Currently, 
existing NASDAQ or BX firms that seek to become PHLX member firms are 
required to undergo a duplicative membership review in order to add a 
PHLX membership. This redundant review would not exist if they sought 
membership on one of the other NASDAQ exchanges. The Exchange seeks 
this rule modification in order to harmonize the rules and minimize 
duplicative membership reviews across all NASDAQ OMX exchanges.

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, if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\14\ and Rule 19b-4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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 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:

[[Page 7728]]

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-2014-07 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-2014-07. 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-2014-07 and should be 
submitted on or before March 3, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-02745 Filed 2-7-14; 8:45 am]
BILLING CODE 8011-01-P