Document ID: SEC-2009-1454-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Specialist and Registered Options Traders Allocation and Assignment Rules
Posted Date: 2009-10-09T04:00Z

[Federal Register: October 9, 2009 (Volume 74, Number 195)]
[Notices]               
[Page 52279-52282]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09oc09-117]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60785; File No. SR-Phlx-2009-86]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Specialist and Registered Options Traders Allocation and Assignment 
Rules

October 2, 2009.
    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 30, 2009, NASDAQ OMX PHLX, Inc. (``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 Phlx Rules 501 (Specialist 
Appointment), 505 (Allocation, Reallocation and Transfer of Issues), 
506 (Allocation Application), 507 (Application for Approval as an SQT 
or RSQT and Assignment of Options), and 513 (Voluntary Resignation of 
Options Privileges) to clarify and streamline the process for 
specialist allocations and Streaming Quote Trader (``SQT'') \3\ and

[[Page 52280]]

Remote Streaming Quote Trader (``RSQT'') \4\ assignments, and delete 
unnecessary or obsolete language.
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    \3\ An SQT is an Exchange Registered Options Trader (``ROT'') 
who has received permission from the Exchange to generate and submit 
option quotations electronically in eligible options to which such 
SQT is assigned. An SQT may only submit such quotations while such 
SQT is physically present on the floor of the Exchange. See Rule 
1014(b)(ii)(A). See also Securities Exchange Act Release No. 59995 
(May 28, 2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32) 
(approval order regarding enhancements to opening, linkage and 
routing, quoting, and order management processes in the Exchange's 
electronic options order entry, trading, and execution system PHLX 
XL II.).
    \4\ An RSQT is an ROT that is a member or member organization 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically in eligible options to which such RSQT has been 
assigned. An RSQT may only submit such quotations electronically 
from off the floor of the Exchange. See Exchange Rule 
1014(b)(ii)(B).
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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 amend Phlx Rules 501, 
505, 506, 507, and 513 to clarify and streamline the process for 
specialist allocations and Streaming Quote Trader and Remote Streaming 
Quote Trader assignments, and delete unnecessary or obsolete language.
    After the merger of The NASDAQ OMX Group, Inc. (``NASDAQ OMX'') and 
the Philadelphia Stock Exchange, Inc. (now NASDAQ OMX PHLX, Inc.),\5\ 
the Commission in May 2009 approved a Phlx filing that, among other 
things, eliminated the Options Allocation, Evaluation and Securities 
Committee (``Allocation Committee'') and transferred all relevant 
duties from the Allocation Committee to the Exchange staff.\6\ As a 
result, the Exchange administers Rules 500 through 599 (the 
``Allocation and Assignment Rules'').
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    \5\ See Securities Exchange Act Release No. 58179 (July 17, 
2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31). See also 
Securities Exchange Act Release No. 58183 (July 17, 2008), 73 FR 
42850 (July 23, 2008) (SR-NASDAQ-2008-035).
    \6\ Securities Exchange Act Release No. 59924 (May 14, 2009), 74 
FR 23759 (May 20, 2009) (SR-Phlx-2009-23)(approval order). The 
proposal is similar in nature to previous proposals that, among 
other things, sought to more closely align the rules of Phlx and 
other exchanges within NASDAQ OMX, such as of The NASDAQ Stock 
Market LLC (``Nasdaq''). See, for example, Securities Exchange Act 
Release Nos. 59794 (April 20, 2009), 74 FR 18761 (April 24, 2009) 
(SR-Phlx-2009-17) (approval order regarding proposal to modify the 
process for nominating Phlx Governors); 60431 (August 4, 2009), 74 
FR 40265 (August 11, 2009) (SR-Phlx-2009-59) (notice of filing 
relating to by-laws, Regulatory Oversight Committee, and referee 
program); and 59923 (May 14, 2009), 74 FR 23902 (May 21, 2009) (SR-
NASDAQ-2009-046) (notice of filing and immediate effectiveness 
relating to criteria for securities that underlie options traded on 
NOM).
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    The Allocation and Assignment Rules generally describe the process 
for: application for becoming and appointment of specialists; 
allocation of classes of options to specialist units and individual 
specialists; application for becoming and approval of SQTs and RQTs and 
assignment of options to them; and specialist, SQT, and RSQT 
performance evaluations.\7\
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    \7\ The Allocation and Assignment Rules also indicate, among 
other things, under what circumstances new allocations may not be 
made. See, for example, Supplementary Material .01 to Rule 506 
(specialist may not apply for a new allocation for a period of six 
months after an option allocation was taken away from the specialist 
in a disciplinary proceeding or an involuntary reallocation 
proceeding).
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    Rule 501 deals with the process of applying for approval as a 
specialist or specialist unit on the Exchange. The Exchange proposes 
changes to clarify that the Exchange may prescribe the form and/or 
format for the initial application and subsequent application(s). This 
proposed change should enhance the uniformity and quality of the 
application process.\8\ The information required on such applications 
is already established in the rule and is not changed.\9\ The exchange 
also clarifies in the rule that upon application by a member 
organization to become a specialist, the Exchange may, but is not 
required, to approve such organization as a specialist unit.
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    \8\ The Exchange notes that specialist applications are 
submitted for various purposes that may include, for example, 
requests for approval as new (or returning) specialists or 
specialist units, initial approval to be a specialist in a 
particular option class, and approval to be a specialist in 
additional option classes. The proposed changes should allow the 
Exchange to have similar applications for use within the various 
types of applicant classes while affording the Exchange flexibility 
to modify the form and/or format of such applications and 
information requested therein.
    \9\ The information specified in Rule 501 for applications to be 
a specialist unit includes the following: (1) The identity of the 
unit's staff positions and who will occupy those positions; (2) the 
unit's clearing arrangements; (3) the unit's capital structure, 
including any lines of credit; and (4) the unit's back up 
arrangements.
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    Rule 505 deals with allocating, re-allocating and transferring 
options classes on the Exchange. Currently, the rule states that a 
specialist unit that receives an allocation in an option must act as a 
specialist in it for at least one year. The Exchange is proposing a 
change indicating that, instead of an inflexible minimum one year time 
period, the Exchange may establish a minimum period that does not 
exceed one year (the ``minimum specialist period''). The length of the 
minimum specialist period, if one is chosen by the Exchange, will be 
indicated by the Exchange when it solicits applications for allocation 
of a security.\10\ The Exchange believes that this rule change would 
allow the Exchange to more closely tailor minimum specialist periods, 
to the benefit of specialists and specialist units as well as the 
Exchange.\11\
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    \10\ See Proposed Commentary .01 to Rule 505.
    \11\ As an example, in establishing a minimum period the 
Exchange may, among other things, take into account the desirability 
of the continuity of a market in a particular class of options.
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    In a similar vein regarding minimum period, the Exchange proposes 
to codify in Rule 507 that upon initial assignment of an option to an 
SQT or RSQT, the SQT or RSQT may not withdraw from such assignment for 
ten or fewer business days after the effective date of assignment. The 
Exchange may, however, in exceptional circumstances approve withdrawal 
from an option assignment before such period of time.\12\ Where an SQT 
or RSQT seeks to withdraw from assignment in an option pursuant to Rule 
507, the period of time that must pass between an SQT or RSQT notifying 
the Exchange of his or her desire to withdraw from assignment and the 
effective date of such withdrawal is reduced from three business days 
to one business day.\13\ Additionally, proposed Rule 507(b) states 
that, similarly to Rule 501, the Exchange may prescribe the form and/or 
format of applications for assignment in an option and the

[[Page 52281]]

minimum information to be provided thereon.\14\
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    \12\ As an example, such exceptional circumstances may exist 
where, within the week after assignment, the entity whose assigned 
security the SQT or RSQT is quoting is acquired by another, thereby 
impacting the risk tolerance of the SQT or RSQT and resulting in a 
request by the SQT or RSQT to cease the assignment.
    \13\ The Exchange conforms Rule 506 to similarly state that if a 
specialist seeks to withdraw from allocation in a security, it 
should so notify the Exchange at least one business day prior to the 
desired effective date of such withdrawal.
    \14\ Moreover, the information noted in the proposed rule (e.g. 
appropriate Exchange account number, requested start date for each 
option applied for, and name of member organization) is similar to 
information currently requested of applicants.
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    Rule 513 deals with voluntary resignations by specialist units from 
allocations of particular options. Currently, the rule states that 
barring any specialist performance or disciplinary issues, the option 
specialist unit that last traded an option must be given preference in 
any future allocation decision regarding the same option. The Exchange 
proposes to clarify that while a preference may be given by the 
Exchange, the preference will no longer be effective for a one year 
period in every instance. This should enable the Exchange to make 
better re-allocation determinations by taking into consideration not 
only past but also current and prospective factors.
    The Exchange also proposes to delete obsolete language regarding 
SQT and RSQT applicants requesting partial options assignments. 
Currently, Rule 507 in Commentary .01 allows an SQT or RSQT applicant 
to request option assignment by ``root symbol,'' \15\ such that an SQT 
or RSQT could effectively request not to be assigned in certain options 
within an options class, such as, for example, those emanating from 
mergers and acquisitions and spin-offs.\16\ In light of the recent 
enhancements and configurations to the Exchange's electronic quoting 
and trading system, which is now known as Phlx XL II,\17\ requesting 
partial assignments is no longer a feasible alternative for SQTs and 
RSQTs and is therefore being deleted.\18\
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    \15\ A root symbol is the options trading mnemonic used for each 
option as applied by The Options Clearing Corporation (``OCC'') to 
series overlying the same security (depending, without limitation, 
on the strike price of the series, the expiration of the series, the 
price of the underlying security, and/or mergers and acquisitions 
relating to the underlying security). See Commentary .01 to Rule 
507.
    \16\ The trend in allocations is, on the other hand, toward 
inclusivity of options emanating from mergers and acquisitions and 
spin-offs. See Securities Exchange Act Release No. 60455 (August 6, 
2009), 74 FR 40857(SR-Phlx-2009-62) (notice of filing and immediate 
effectiveness) (providing for automatic allocation of related 
options).
    \17\ See Exchange Act Release No. 59995 (May 28, 2009), 74 FR 
26750 (June 3, 2009) (SR-Phlx-2009-32) (approval order regarding XL 
II).
    \18\ Assignment by ``root symbol'' is not compatible with XL II 
system requirements.
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    The Exchange believes that the changes proposed to the Allocation 
and Assignment Rules as a whole streamline the rules and make their 
implementation more uniform and predictable to the benefit of the 
Exchange and market participants such as specialists, specialist units, 
SQTs and RSQTs on the Exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \19\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \20\ 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 clarifying and streamlining the process for specialist 
allocations and SQT and RSQT assignments. The Exchange believes that 
its rule change proposal does not engender unfair discrimination among 
specialists, specialist units, SQTs and RSQTs in that it clarifies and 
streamlines (as well as codifies) allocation and assignment procedures 
that are equally applicable to all members and member organizations at 
the Exchange.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 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: (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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \21\ and Rule 19b-4(f)(6) \22\ 
thereunder.
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 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. 
Phlx has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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-2009-86 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-2009-86. 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, 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 inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
am and 3 pm. 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-2009-86 and should

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be submitted on or before October 30, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-24356 Filed 10-8-09; 8:45 am]

BILLING CODE 8011-01-P