Document ID: SEC-2015-0732-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2015-04-29T04:00Z

[Federal Register Volume 80, Number 82 (Wednesday, April 29, 2015)]
[Notices]
[Pages 23841-23843]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-09920]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74801; File No. SR-Phlx-2015-35]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Delete 
Outdated Rule Language Contained in Rule 1019 and Options Floor 
Procedures Advices

April 23, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 16, 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    The Exchange proposes to delete outdated rule language contained in 
(i) Rule 1019, Precedence Accorded To Orders Entrusted To Specialists, 
and (ii) Options Floor Procedures Advices (``Advices'') A-2, A-13, D-1, 
D-2, F-3, F-7 and F-21, as explained further below.
    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 the proposed rule change is to update the Exchange's 
rules by deleting eight obsolete rules, including Rule 1019 as well as 
and Advices A-2, A-13, D-1, D-2, F-3, F-7 and F-21. These rules are now 
obsolete for various reasons explained below.
    Historically, Advices replicated the provisions of the Exchange's 
rule that were most pertinent for the trading floor community to keep 
handy, in lieu of the large, unwieldy rulebook; the Exchange adopted, 
for many years, both rules and Advices that contained nearly identical 
language where the Advice was the subject of a fine schedule under the 
Exchange's minor rule plan \3\ in order for the trading floor to have 
easy access to these provisions (which the Exchange printed and 
distributed) and in order for those persons who administered fines to 
have easy access to consult the applicable fine schedules. Most of the 
Advices which the Phlx is proposing to delete contain similar 
information to Rule 1019, which, as stated below, is also obsolete.
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    \3\ Many of these Advices contain a fine schedule which is 
administered pursuant to the Phlx's minor rule violation enforcement 
and reporting plan (``Minor Rule Plan''), and therefore the proposal 
necessarily amends the Exchange's Minor Rule Plan. The Phlx's Minor 
Rule Plan, codified in Phlx Rule 970, ``Floor Procedure Advices: 
Violations, Penalties, and Procedures,'' contains Advices with 
accompanying fine schedules. See Securities Exchange Act Release No. 
23296 (June 4, 1986), 51 FR 21430 (June 12, 1986) (SR-Phlx-86-11). 
Pursuant to paragraph (c)(1) of Rule 19d-1 under the Act, a self-
regulatory organization (``SRO'') is required to file promptly with 
the Commission notice of any ``final'' disciplinary action taken by 
the SRO. Pursuant to paragraph (c)(2) of Rule 19d-1, any 
disciplinary action taken by the SRO for violation of an SRO rule 
that has been designated a minor rule violation pursuant to the plan 
shall not be considered ``final'' for purposes of Section 19(d)(1) 
of the Act if the sanction imposed consists of a fine not exceeding 
$2500 and the sanctioned person has not sought an adjudication, 
including a hearing, or otherwise exhausted his or her 
administrative remedies. By deeming unadjudicated minor violations 
as not final, the Commission permits the SRO to report violations on 
a periodic (quarterly), as opposed to immediate, basis.
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    Several provisions pertaining to Specialists \4\ are obsolete, 
because Specialists no longer manually handle or execute others' orders 
due to the migration to a new electronic trading system (``Phlx XL 
II'') in 2009.\5\ Of

[[Page 23842]]

course, many other rules govern the obligations of Specialists, such as 
quoting and registration obligations,\6\ but a manual book no longer 
exists. Although there was an electronic limit order book for options 
for a long time,\7\ Specialists used to be able to enter manual orders 
entrusted to them onto the electronic limit order book; with the advent 
of Phlx XL II, the Specialist could no longer accept and execute orders 
manually.\8\
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    \4\ See Rule 1020.
    \5\ 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).
    \6\ See e.g., Rules 1014(b) and 1020.
    \7\ See Rule 1080.02.
    \8\ Specifically, the Exchange stated that no orders will be 
executed, and therefore handled, manually in Phlx XL II. See 
Securities Exchange Act Release No. 59721 (April 7, 2009), 74 FR 
17245 (April 14, 2009) (SR-Phlx-2009-32) (Notice of Filing of 
Proposed Rule Change Relating to the Exchange's Enhanced Electronic 
Trading Platform for Options, Phlx XL II at 17258).
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    Phlx Rule 1019, Precedence Accorded to Orders Entrusted To 
Specialists, governs the precedence given to orders entrusted to the 
Specialist. Rule 1019 is now obsolete given that the Specialist no 
longer manually handles orders and therefore orders cannot be 
``entrusted.'' This rule contains several specific obligations related 
to the Specialist's handling of orders. All of the provisions in 
Commentaries .01-.05 refer to the Specialist's book, leaving orders 
with the Specialist or entrusting orders to the Specialist. None of 
these provisions are operational or can be relied upon because the 
Specialist's book no longer exists.\9\ The Exchange proposes to delete 
this rule in order to prevent any confusion that may result from this 
obsolete rule and to ensure that the rulebook accurately reflects 
member obligations.
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    \9\ Id.
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    Similarly, Advice A-2 governs the types of orders to be accepted 
into the Specialist's book. Advice A-2 is now obsolete given that the 
Specialist no longer manually handles orders.\10\ Therefore, there is 
no longer a ``Specialist's book;'' as stated above, the options 
electronic limit order book is operated by Exchange systems.
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    \10\ Id.
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    Advice A-13 governs the Auto Execution Engagement/Disengagement 
responsibility of the Specialist. Specifically, it requires Specialists 
to engage (meaning, turn on) Auto-X, the automatic execution 
functionality, within a certain period of time and permits 
disengagement by the Specialist under certain circumstances. Advice A-
13 is now obsolete given that the Specialist no longer manually handles 
orders and all orders are automatically executed.\11\ The Specialist no 
longer has control over the automatic execution functionality; such 
functionality operates on Phlx XL II for all options, without any need 
for engagement or disengagement by the Specialist.
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    \11\ Id.
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    Advice D-1 governs the Exchange's handling of errors. Specifically, 
this Advice governs missed orders and any corresponding remedies and 
protocols resulting from missed orders. Advice D-1 is now obsolete due 
to the automated functionality of Phlx XL II, as reflected in Rules 
1017, 1080 and 1014. Missed orders cannot occur because orders are not 
held or guaranteed by Specialists.\12\ Potential errors respecting 
automatically executed orders (and all orders) are handled pursuant to 
Rule 1092.
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    \12\ Id.
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    Advice D-2 governs instances of non-liability. Advice D-2 is now 
obsolete because the opening and close of trading are now automated 
pursuant to Rule 1017; there is no manual participation in the opening 
for which Specialists or Floor Brokers could be held liable.\13\ As 
stated above, errors are handled pursuant to Rule 1092, including 
errors involving Floor Brokers.
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    \13\ The opening process became fully automated in Phlx XL II. 
See supra note 5.
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    Advice F-3 governs manual trading of securities by the Specialist. 
Specifically, this Advice governs members' requests for sold sale 
designations, including the initialing of sold sales by Specialists. 
Sold sales are trades for which trade reporting to the ``tape'' was 
delayed. Advice F-3 is now obsolete given that the Specialist no longer 
manually handles orders.\14\ Sold sales still exist but do not involve 
the Specialist.
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    \14\ See supra note 8.
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    Advice F-7 governs the size of the Exchange's disseminated bid or 
offer, including the sum of the size associated with Specialist, 
Streaming Quote Trader (``SQT'') and Remote Streaming Quote Trader 
(``RSQT'') \15\ quotations. Advice F-7 is no longer needed for two 
reasons: (i) The Exchange's Phlx XL II system determines what size is 
disseminated, in accordance with Commission rules; \16\ and (ii) Rule 
1082 contains specifically what the Exchange disseminates.\17\
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    \15\ See Phlx Rule 1014(b).
    \16\ See Rule 602 pursuant to Regulation NMS.
    \17\ See e.g., Phlx Rule 1082(a)(ii)(C).
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    The Exchange currently offers foreign currency options for trading. 
At one time, there was a special block trading process for foreign 
currency options, which appeared in both Rule 1016 and Advice F-21. 
Both governed block transactions in foreign currency options, including 
the procedure for quoting and executing a block transaction, and the 
priority of execution among the contra-side participants of the block 
order. At the time, foreign currency options did not trade 
electronically. Because of the adoption of a new type of foreign 
currency option that became available for electronic trading, as 
explained below, Rule 1016 was made applicable only to physical 
delivery \18\ foreign currency options in 2007,\19\ but Advice F-21 
inadvertently was not. Since March 2007, physical delivery foreign 
currency options are no longer listed and traded on the Exchange, and 
the Exchange instead offers U.S. dollar-settled foreign currency 
options, which are available for trading on Phlx XL II.\20\ 
Accordingly, the Exchange proposes to delete Advice F-21.
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    \18\ Physical delivery options, so named because settlement 
could involve delivery of the underlying currency (as opposed to 
cash for U.S. dollar-settled foreign currency options), traded on 
the Exchange 1982-2007.
    \19\ See Securities Exchange Act Release No. 54989 (December 21, 
2006), 71 FR 78506 (December 29, 2006) (SR-Phlx-2006-34).
    \20\ See Securities Exchange Act Release No. 60169 (June 24, 
2009), 74 FR 31782 (July 2, 2009) (SR-Phlx-2009-40).
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    In summary, the Exchange proposes to delete Options Floor 
Procedures Advices A-2, A-13, D-1, D-2, F-3, F-7 and F-21 as well as 
Rule 1019, in order to prevent the confusion that may result from 
having obsolete rules in the Exchange's rulebook and in order to ensure 
that the rulebook accurately reflects member obligations.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \21\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \22\ in particular, in that it is designed to 
promote just and equitable principles of trade, and to protect 
investors and the public interest, by deleting obsolete provisions and 
generally providing clarity to the rules. Some of the changes reflect 
changed practices on the trading floor. Specifically, the deletion of 
Advices F-3, F-7 and F-21 is consistent with the Act because they are 
operationally obsolete, as explained above; moreover, having clear and 
up-to-date rules should promote just and equitable principles of trade 
on the Exchange.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
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    The proposal should result in a more accurate and understandable 
rule book, particularly for Exchange Specialists. It

[[Page 23843]]

should make clearer that Specialists no longer operate a book or handle 
orders manually. The deletion of Advices and one rule pertaining to 
Specialists' functions and obligations are consistent with the Act for 
the same reason stated above pertaining to the importance of having up-
to-date rules, which should, in turn, promote just and equitable 
principles of trade. In addition, the deletion of Advice A-2, Advice D-
1 and Rule 1019 should promote just and equitable principles of trade, 
because there is no longer a Specialist's limit order book
    The deletion of Advice D-1 regarding to liability for missed orders 
on the Specialist's book also promotes just and equitable principles of 
trade by making clear that a Floor Broker can no longer leave an order 
with the specialist. The deletion of Advice D-2 should promote just and 
equitable principles of trade by making it clear that openings occur 
automatically and do not involve Specialists or Floor Brokers. 
Specialists' functions are principally governed by Rules 1014 and 1020.

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 because it merely 
deletes obsolete provisions 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

    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 \23\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\24\ Specifically, it does 
not significantly affect the protection of investors or the public 
interest because it deletes obsolete rules, as explained in detail 
above, due to increased automation, which resulted in the concomitant 
reduction in Specialist responsibilities. Furthermore, this increased 
automation also affected the dissemination of quotes, which, in turn, 
affected the need for provisions requiring Specialist, SQTs and RSQTs 
to be involved in quote dissemination. In addition, the deletion of 
Advice F-21 relating to foreign currency option trading does not 
significantly affect the protection of investors or the public 
interest, because investors would not have expected that block trading 
be available due to the prior deletion of Rule 1016 and change in the 
foreign currency option product offering, as described above. Nor does 
the proposal impose any significant burden on competition, as explained 
above.
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    \23\ 15 U.S.C. 78s(b)(3)(a)(ii) [sic].
    \24\ 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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    Furthermore, Rule 19b-4(f)(6)(iii) requires a self-regulatory 
organization to give the Commission written notice of its intent to 
file a proposed rule change under that subsection at least five 
business days prior to the date of filing, or such shorter time as 
designated by the Commission. The Exchange has provided such notice.
    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-2015-35 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-2015-35. 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 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-2015-35, and should be 
submitted on or before May 20, 2015.
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    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
Brent J. Fields,
Secretary.
[FR Doc. 2015-09920 Filed 4-28-15; 8:45 am]
 BILLING CODE 8011-01-P