Document ID: SEC-2015-0230-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2015-02-09T05:00Z

[Federal Register Volume 80, Number 26 (Monday, February 9, 2015)]
[Notices]
[Pages 7068-7070]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-02504]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74197; File No. SR-Phlx-2015-11]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Add New 
Rule 1016 To Authorize the Exchange To Share Phlx XL Participant-
Designated Risk Settings in Phlx XL

February 3, 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 January 28, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to add new Rule 1016 to authorize the 
Exchange to share any Phlx XL participant-designated risk settings in 
Phlx XL, the Exchange's trading system, with the clearing member that 
clears transactions on behalf of the Phlx XL participant.
    The text of the proposed rule change is below; proposed new 
language is italicized; proposed deletions are in brackets.

NASDAQ OMX PHLX Rules

Options Rules

* * * * *

[Rule 1016. Reserved.]

Rule 1016. Exchange Sharing of Phlx XL Participant-Designated Risk 
Settings

    The Exchange may share any Phlx XL participant-designated risk 
settings in

[[Page 7069]]

the trading system with the clearing member that clears transactions on 
behalf of the Phlx XL participant. For purposes of this rule a Phlx XL 
participant is any specialist, streaming quote trader or remote 
streaming quote trader.
* * * * *

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 proposed to adopt new Rule 1016 to authorize the 
Exchange to share any Phlx XL participant-designated risk settings in 
Exchange's trading system with the clearing member that clears 
transactions on behalf of the Phlx XL participant. For purposes of Rule 
1016, a Phlx XL participant is any specialist, streaming quote trader 
(``SQT'') or remote streaming quote trader (``RSQT'').\3\
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    \3\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a). An SQT is defined in 
Exchange Rule 1014(b)(ii)(A) as a Registered Options Trader 
(``ROT'') who has received permission from the Exchange to generate 
and submit option quotations electronically in options to which such 
SQT is assigned. An RSQT is defined in Exchange Rule in 
1014(b)(ii)(B) as an ROT that is a member affiliated with an RSQTO 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically in options to which such RSQT has been assigned. A 
Remote Streaming Quote Trader Organization or ``RSQTO,'' which may 
also be referred to as a Remote Market Making Organization 
(``RMO''), is a member organization in good standing that satisfies 
the RSQTO readiness requirements in Rule 507(a). A ROT includes a 
SQT, a RSQT and a Non-SQT, which by definition is neither a SQT nor 
a RSQT and to which Rule 1016 will not apply. A Registered Options 
Trader is defined in Exchange Rule 1014(b) as a regular member of 
the Exchange located on the trading floor who has received 
permission from the Exchange to trade in options for his own 
account. See Exchange Rule 1014(b)(i) and (ii).
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    Phlx XL participants are required to be members of the Exchange.\4\ 
Rule 1046 requires a member or member organization conducting an 
options business to either be: (i) A clearing member of The Options 
Clearing Corporation (``OCC''); or (ii) have a clearing arrangement 
with an Exchange member organization that is a clearing member of OCC. 
Further, pursuant to Rule 1052, every member organization which is a 
clearing member of the OCC shall be responsible for the clearance of 
the Exchange options transactions of each member or member organization 
who gives up the name of such clearing member in an Exchange options 
transaction, provided the clearing member has authorized such member or 
member organization to give up its name with respect to Exchange 
options transactions.
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    \4\ As noted above, A Registered Options Trader is defined in 
Exchange Rule 1014(b) as a regular member of the Exchange located on 
the trading floor who has received permission from the Exchange to 
trade in options for his own account. See Exchange Rule 1014(b)(i) 
and (ii).
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    While not all Phlx XL participants are clearing members, all Phlx 
XL participants require a clearing member's consent to clear 
transactions on their behalf in order to conduct business on the 
Exchange. Each Phlx XL participant that transacts through a clearing 
member on the exchange executes a Letter of Guarantee which codifies 
the relationship between each Phlx XL participant and clearing member 
and provides the Exchange with notice of which clearing members have 
relationships with which Phlx XL participants. The clearing member that 
guarantees the Phlx XL participant's transactions on the Exchange has a 
financial interest in understanding the risk tolerance of the Phlx XL 
participant. The proposal would provide the Exchange with authority to 
directly provide clearing members with information that may otherwise 
be available to such clearing members by virtue of their relationship 
with the respective Phlx XL participants.
    At this time, the risk settings covered by this proposal are set 
forth in Rule 1093, Phlx XL Risk Monitor Mechanism.\5\ The Exchange may 
adopt additional rules providing for Phlx XL participant-designated 
risk settings other than those provided in Exchange Rule 1093 that 
could be shared with a Phlx XL participant's clearing member under the 
proposal, and the Exchange would announce these additional risk 
settings by issuing an Options Trader Alert.
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    \5\ See Securities Exchange Act Release No. 53166 (January 23, 
2006), 71 FR 4625 (January 27, 2006) (SR-Phlx-2006-05). The 
Mechanism provides protection to participants from the risk of 
multiple executions across multiple series of an option. Quoting 
across many series in an option creates the possibility of ``rapid 
fire'' executions that can create large, unintended principal 
positions that expose market makers, who are required to 
continuously quote in assigned options, to potentially significant 
market risk. Specialists, SQTs and RSQTs (collectively, ``Phlx XL 
participants'') assigned in a particular option may establish a 
specified time period, not to exceed 15 seconds, within which a 
counting program will count the number of contracts traded in an 
option by such Phlx XL participant. When the Phlx XL participant has 
traded a certain number of contracts during the specified time 
period, the Risk Monitor Mechanism will automatically remove such 
Phlx XL participant's quotations from the Exchange's disseminated 
quotation in all series of the particular option.
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2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\6\ in general, and with Section 
6(b)(5) of the Act \7\ in particular, in that the proposal 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 regulating, clearing, settling, 
processing information with respect to, and 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.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change will allow the Exchange to directly 
provide a Phlx XL participant's designated risk settings to the 
clearing member that clears trades on behalf of the Phlx XL 
participant. Because a clearing member that executes a clearing Letter 
of Guarantee on behalf of a Phlx XL participant guarantees all 
transactions of that Phlx XL participant, and therefore bears the risk 
associated with those transactions, it is appropriate for the clearing 
member to have knowledge of what risk settings the Phlx XL participant 
may utilize within the Exchange's trading system. The proposal will 
permit clearing members who have a financial interest in the risk 
settings of Phlx XL participants with whom the clearing member has 
entered into a clearing Letter of Guarantee to better monitor and 
manage the potential risks assumed by clearing members, thereby 
providing clearing members with greater control and flexibility over 
setting their own risk tolerance and exposure and aiding clearing 
members in complying with the Act. To the extent a clearing member 
might reasonably require a Phlx XL participant to provide access to its 
risk settings as a prerequisite to continuing to clear trades on the 
Phlx XL participant's behalf, the Exchange's

[[Page 7070]]

proposal to share those risk settings directly reduces the 
administrative burden on Phlx XL participants and ensures that clearing 
members are receiving information that is up-to-date and conforms to 
the settings active in the Exchange's trading system.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. The proposed rule 
change is not designed to address any competitive issues and does not 
pose an undue burden on non-clearing members because, unlike clearing 
members, non-clearing members do not guarantee the execution of a Phlx 
XL participant's transactions on the Exchange. The proposal is 
structured to offer the same enhancement to all clearing members, 
regardless of size, and would not impose a competitive burden on any 
participant. Any Phlx XL participant that does not wish to share its 
designated risk settings with its clearing member could avoid sharing 
such settings by becoming a clearing member of OCC.

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) [sic] of the Act \8\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \9\ 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 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-2015-11 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2015-11. 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 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-2015-11, 
and should be submitted on or before March 2, 2015.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-02504 Filed 2-6-15; 8:45 am]
BILLING CODE 8011-01-P