Document ID: SEC-2016-1551-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX, LLC
Posted Date: 2016-08-31T04:00Z

[Federal Register Volume 81, Number 169 (Wednesday, August 31, 2016)]
[Notices]
[Pages 60110-60112]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20893]

[[Page 60110]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78680; File No. SR-Phlx-2016-86]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
of Proposed Rule Change to Delete or Amend Outdated Rule Language

 August 25, 2016.
    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 August 12, 2016, NASDAQ PHLX LLC (``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    The Exchange proposes to delete or amend outdated rule language 
contained in Rules 1022, Securities Accounts and Orders of Specialists 
and Registered Options Traders, 1036, Affiliated Persons of 
Specialists, and 1037, Floor Reports of Exchanges Options Transactions.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.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 Exchange is proposing to delete or amend several rules 
pertaining to the obligations of specialists, as follows.\3\
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    \3\ A ``specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Exchange Rule 1020(a). Specialists 
are subject to quoting and registration obligations set forth in 
Rules 1014(b), 1020 and 1080.02.
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Rule 1022
    Rule 1022 (b) and (c) currently provide that each specialist or 
Registered Options Trader (``ROT'') shall provide certain reports of 
options and orders in a manner provided by the Exchange. Section (b) 
requires each specialist or ROT, no later than 10:00 a.m. on the 
business day following order entry date, to report to the Exchange 
opening positions and each purchase and sale in each option in which 
the Specialist or ROT is registered for each account reported pursuant 
to Rule 1022.\4\
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    \4\ The report is required to designate the time and type of 
tick at which such transaction was effected.
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    Likewise, Section (c) requires each specialist or ROT, no later 
than 10:00 a.m. on the business day following order entry date, to 
report to the Exchange every order entered by the specialist or ROT for 
the purchase or sale of a security underlying any stock or Exchange-
Traded Fund Share options contract traded on the Exchange or a security 
convertible into or exchangeable for such underlying security as well 
as opening and closing positions in all such securities held in each 
account reported pursuant to the rule.\5\ The requirements of both 
Sections (c) and (d) are qualified--the reports are required to be made 
``in a manner prescribed by the Exchange.''
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    \5\ The report pertaining to orders must include the terms of 
each order, identification of the brokerage firms through which the 
orders were entered, the times of entry or cancellation, the times 
reports of executions were received and, if all or part of the order 
was executed, the quantity and execution price.
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    The Exchange is deleting Sections (b) and (c) as obsolete and 
reserving those sections. The Exchange has previously stated with 
respect to Rule 1022 that the required reports of activity in each 
option, as well as activity in the underlying stock, is reviewed daily 
to insure compliance with Exchange and SEC rules and regulation.\6\ 
However, the Exchange does not require nor does it currently receive 
the reports specified in those sections because it believes that the 
burden of filing the reports would outweigh the benefits and it does 
not believe the reports are necessary to fulfill its regulatory 
obligations given other sources of information now available to the 
Exchange. While current Exchange staff is unaware whether a circular 
was issued advising specialists that they were no longer required to 
provide the reports required under Rule 1022, the reports have not been 
required by or received by the Exchange for 15 years or more.
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    \6\ See Securities Exchange Act Release No. 19940 (July 1, 
1983), 48 FR 31950 (July 12, 1983).
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    The information referred to in Section (b) is available from The 
Options Clearing Corporation. Much of the information called for in 
Section (c) is now available to the Exchange in the ISG Equity Audit 
Trail known among the exchanges as ECAT.
Rule 1036
    Section (a) of Rule 1036, Affiliated Persons of Specialists, 
currently requires every limited partner, approved person and every 
party who is affiliated with a specialist member organization to agree, 
in a stipulation approved by the Exchange, not to violate any Exchange 
rule or cause a specialist or a specialist member organization to 
violate these or any other rules relating to specialists. The Exchange 
currently does not collect such stipulations. The violation of such a 
stipulation would have provided the Exchange with a separate basis for 
proceeding against the provider of the stipulation in the event of an 
Exchange rule violation by that person or by a specialist or specialist 
member organization. However, the Exchange has determined that the 
burden of collecting such stipulations would outweigh any benefits and 
is accordingly proposing to delete and reserve Section (a) of Rule 
1036.
    Rule 1036(b) provides that no issuer, or parent or subsidiary 
thereof, or any officer, director or 10% stockholder thereof, may 
become an approved person in a specialist member organization whose 
members are registered in a security of that issuer. Rule 1036(b) 
however applies only to options trading on the Exchange. Therefore, the 
Exchange is amending Rule 1036(b) to refer to members who are 
registered in options overlying a security of that issuer.\7\
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    \7\ The Exchange is also correcting the rule by changing the 
word ``who'' to ``whose''.
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Rule 1037

    Rule 1037, Floor Reports of Exchanges Options Transactions, 
provides for a specialist's liability for missed orders on the book. 
Under the rule a specialist was liable for any loss sustained for 
orders

[[Page 60111]]

entrusted to him which should have been executed, and for which he 
should have sent an execution report, when the specialist was made 
aware of the error by 9:30 on the business day following the submission 
of the order.\8\ Rule 1037 is being deleted as obsolete and reserved. 
Due to the migration of the Exchange to a new electronic trading system 
(``Phlx XL II'') in 2009, missed orders by Specialists no longer occur 
because Specialists no longer handle orders for other market 
participants in their capacity as Specialists.\9\ Missed orders cannot 
occur because orders are not held or guaranteed by Specialists, who now 
trade only for their own accounts in that capacity. The deletion of 
Rule 1037 should prevent confusion that may result from having obsolete 
rules in the Exchange's rulebook.
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    \8\ In a May 17, 1991 amendment to SR-Phlx-91-21, the Exchange 
amended the introductory language of Rule 1037 by replacing ``12:00 
noon'' with ``9:30 a.m.''. The same change was also made to 
Commentary .03. It appears that although the change to Commentary 
.03 was then carried over into the rulebook, the same change to the 
introductory language was inadvertently overlooked and thus not 
reflected in the rulebook. See Securities Exchange Act Release No. 
32695 (July 29, 1993), 58 FR 41821 (August 5, 1993).
    \9\ In May 2009, the Exchange enhanced the options trading 
system and adopted corresponding rules referring to it as ``Phlx XL 
II.'' See Securities Exchange Act Release No. 59995 (May 28, 2009), 
74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32). Thereafter, the 
Exchange submitted a number of filings updating various rules and 
deleting obsolete provisions. See Securities Exchange Act Release 
Nos. 61397 (January 22, 2010), 75 FR 4893 (January 29, 2010) (SR-
Phlx-2010-07); 63036 (October 4, 2010), 75 FR 62621 (October 12, 
2010) (SR-Phlx-2010-131); and 67469 (July 19, 2012), 77 FR 43633 
(July 25, 2012) (SR-Phlx-2012-92).
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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 deleting obsolete provisions and generally providing 
clarity to the rules.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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Rule 1022
    The amendments to Rule 1022 are consistent with the Act because 
they delete requirements that specialists and ROTs provide reports 
which the Exchange no longer needs in order to fulfill its regulatory 
responsibilities. The elimination of the requirements reduces an 
unnecessary burden on ROTs and specialists, which therefore removes an 
impediment to a free and open market and a national market system.
Rule 1036
    The amendments to Rule 1036 are consistent with the Act because 
they clarify that Rule 1036(b) applies to option specialist member 
organizations. They also eliminate requirements that certain affiliates 
of specialists or related persons provide stipulations the collection 
of which the Exchange believes to be a burden that is not outweighed by 
its benefits. The elimination of the requirement reduces an unnecessary 
burden on the Exchange, which therefore removes an impediment to a free 
and open market and a national market system.
Rule 1037
    The deletion of Rule 1037 is consistent with the Act because this 
rule language is operationally obsolete, as explained above; moreover, 
having clear and up-to-date rules should promote just and equitable 
principles of trade on the Exchange. The proposal should result in a 
more accurate and understandable rule book, particularly for Exchange 
specialists who no longer operate a book or handle orders for accounts 
other than their own.

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 proposal raises neither 
intra-market nor inter-market competition issues. The proposal deletes 
or amends obsolete or unnecessary provisions or clarifies rules and 
therefore does not impact how the market operates today.

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-2016-86 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-2016-86. 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-2016-86 and 
should be submitted on or before September 21, 2016.

[[Page 60112]]

    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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-20893 Filed 8-30-16; 8:45 am]
 BILLING CODE 8011-01-P