Document ID: SEC-2013-1548-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2013-09-03T04:00Z

[Federal Register Volume 78, Number 170 (Tuesday, September 3, 2013)]
[Notices]
[Pages 54346-54349]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-21298]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70270; File No. SR-Phlx-2013-84]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Amend 
Phlx Rule 910 and Related Phlx Rules

August 27, 2013.
    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 14, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
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 Rule 910 (Qualification as 
Member Organization) and related Phlx rules. The text of the proposed 
rule change is below. Proposed additions are in italics and proposed 
deletions are in brackets.
    Rule 900.2. Membership Applications
    (a)-(c) No change.
    (d) [If the Membership Department does not approve a membership 
application or permit application, the department will notify the 
applicant in writing of the specific grounds for denial and the 
applicant shall have a right to a hearing. Any appeal from a decision 
of the Membership Department shall be heard by a special committee of 
the Board of Directors composed of three (3) Directors, of whom at 
least one (1) shall be a Public Director. The person requesting review 
may appeal by filing a written notice thereof with the Secretary of the 
Exchange within ten (10) days after a decision. The person requesting 
review shall be permitted to submit a written statement to this special 
committee. The Secretary of the Exchange shall certify the record of 
the proceeding, if any and the written decision and shall submit these 
documents to the special committee. The special committee's review of 
the action shall be based solely on the record, the written decision 
and any statement submitted by the person requesting the review. The 
special committee shall prepare and deliver to such person a written 
decision and reasons therefor. If the special committee affirms the 
action, the action shall become effective ten (10) days from the date 
of the special committee's decision. There shall be no appeal to the 
Board of Directors from any decision of the special committee.
    (e)] Absent a showing of good cause, an application filed pursuant 
to this Rule shall lapse after a 90 calendar day period if an applicant 
fails to provide the requisite documentation provided for in this Rule 
or any subsequent written request for information or documents pursuant 
to this Rule within such time period agreed to by the Membership 
Department. If such time period elapses, an applicant seeking 
membership to the Exchange shall be required to file a new application 
pursuant to this Rule. The applicant will be required to pay an 
additional application fee at that time. The Exchange will not refund 
any fees for lapsed applications.
    [(f)] (e) The provisions of this Rule 900.2 shall not apply to a 
corporation pursuant to Rule 798.
* * * * *
    Rule 910. Qualification as Member Organization
    (a)-(e) No change.
    (f)(1) To obtain and maintain the status of a member organization, 
an organization shall: (i) Be a broker or dealer duly registered under 
the Exchange Act; (ii) be duly qualified by a permit holder who is 
primarily affiliated with such organization for purposes of nominating 
as provided in the By-Laws; (iii) have submitted to the Membership 
Department an application for such status in the form approved by the 
Membership Department and any other information and materials requested 
by the Membership Department; (iv) have had such application approved 
by the Membership Department; and (v) meet such other requirements as 
are set forth in these By-Laws or the Rules of the Exchange.
    (2) To obtain and maintain the status of a Market Maker on PSX, a 
member organization whose market making has not previously been 
approved by FINRA under the NASD Rule 1000 Series (or such successor 
FINRA Rules as may be adopted by FINRA), NASDAQ under the NASDAQ Rule 
1000 Series, or NASDAQ OMX BX under the BX Rule 1000 Series shall: (i) 
Have submitted to the Membership Department an application for such 
status in the form approved by the Membership Department and any other 
information and material requested by the Membership Department; (ii) 
have had such application approved by the Membership Department; and 
(iii) meet such other requirements as are set forth in the By-Laws or 
Rules of the Exchange. The information to be provided shall include a 
business plan, an organizational chart, written supervisory procedures 
reflecting the change, and such other information as the Membership 
Department may request.
    (g)-(j) No change.
* * * * *
    Rule 923. [Reserved] Review of Membership Department Decisions
    If the Membership Department takes an adverse action with respect 
to a membership application, permit application, or other matter for 
which the Membership Department has responsibility, the department will 
notify the applicant in writing of the specific grounds for denial and 
the applicant shall have a right to a hearing. Any appeal from a 
decision of the

[[Page 54347]]

Membership Department shall be heard by a special committee of the 
Board of Directors composed of three (3) Directors, of whom at least 
one (1) shall be a Public Director. The person requesting review may 
appeal by filing a written notice thereof with the Secretary of the 
Exchange within ten (10) days after a decision. The person requesting 
review shall be permitted to submit a written statement to this special 
committee. The Secretary of the Exchange shall certify the record of 
the proceeding, if any, and the written decision and shall submit these 
documents to the special committee. The special committee's review of 
the action shall be based solely on the record, the written decision 
and any statement submitted by the person requesting the review. The 
special committee shall prepare and deliver to such person a written 
decision and reasons therefor. If the special committee affirms the 
action, the action shall become effective ten (10) days from the date 
of the special committee's decision. There shall be no appeal to the 
Board of Directors from any decision of the special committee.
* * * * *
    Rule 3212. Registration as a Market Maker
    (a) Quotations and quotation sizes may be entered into PSX only by 
a member organization registered as a PSX Market Maker or other entity 
approved by the Exchange to function in a market-making capacity. 
Member organizations seeking to become registered as a PSX Market Maker 
must comply with the applicable requirements of Rule 910.
    (b)-(c) No change.
* * * * *

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 recently adopted rules to allow market making on 
PSX.\3\ Rule 910(f) provides that member organizations seeking to 
maintain their status shall submit to the Exchange's Membership 
Department (the ``Department'') any information and materials requested 
by the Department. Pursuant to this authority, the Department has 
determined that in the event a member organization seeks to become a 
market maker on PSX, it may request information from the member 
organization in order to evaluate its qualifications. However, in order 
to make the requirements of the rule clearer, and to describe 
circumstances in which submission of additional information will not be 
deemed necessary, the Exchange is proposing to amend Rule 910.\4\
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    \3\ Securities Exchange Act Release No. 69452 (April 25, 2013), 
78 FR 25512 (May 1, 2013) (SR-Phlx-2013-24).
    \4\ In addition, the Exchange is adding a cross-reference to 
Rule 910 to Rule 3212, which governs registration of PSX market 
makers in specific securities for which they intend to make markets.
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    Specifically, the amended rule will provide that a member 
organization seeking to become a PSX Market Maker must submit required 
material to the Exchange's Membership Department unless the member 
organization's market making has previously been approved by the 
Financial Industry Regulation Authority (``FINRA'') under the NASD Rule 
1000 Series (or such successor FINRA rules as FINRA may adopt), The 
NASDAQ Stock Market (``NASDAQ'') under the NASDAQ Rule 1000 Series, or 
NASDAQ OMX BX (``BX'') under the BX Rule 1000 Series. In this respect, 
the proposed rule is modeled on NASDAQ Rules 1011 and 1017, which 
provide that a member's market making for the first time on NASDAQ is 
considered a material change in its business operations, requiring 
approval by the NASDAQ Membership Department, unless ``the member's 
market making has previously been approved by FINRA under NASD Rule 
1017 or NASDAQ OMX BX under NASDAQ OMX BX Equity Rule 1017.'' \5\ Thus, 
the rule recognizes the work performed by other self-regulatory 
organizations in vetting the capability of the member to perform market 
making functions.
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    \5\ The proposed Phlx rule is slightly broader, in that it would 
recognize a new member's approval as a market maker, or an existing 
member's approval as a market maker, under the Rule 1000 Series of 
the referenced self-regulatory organizations. The referenced rules 
govern both new membership applications and applications for a 
change in business operations.
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    In cases where a Phlx member organization has not been previously 
approved to engage in market making by FINRA, NASDAQ, or BX, the member 
organization would be required (i) to submit to the Membership 
Department an application in the form approved by the Membership 
Department and any other information and material requested by the 
Membership Department; (ii) to have had such application approved by 
the Membership Department; and (iii) to meet such other requirements as 
are set forth in these [sic] By-Laws or the Rules of the Exchange 
(e.g., compliance with Rule 3213 (Registration as a Market Maker) and 
Rule 911 (Member and Member Organization Participation)). The 
information to be provided shall include a business plan, an 
organizational chart, written supervisory procedures reflecting the 
change, and such other information as the Membership Department may 
request. This information is similar to the information required under 
NASDAQ Rule 1017(b) in similar circumstances.\6\ The Exchange believes 
that such information will enable the Membership Department to review 
details necessary to assess the capability of the member organization 
to act in a market making capacity.
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    \6\ In contrast to the NASDAQ Rule, however, the Phlx rule will 
not specifically require the applicant to provide pro forma 
financial statements, which Phlx believes are unlikely to provide 
materially useful information about the applicant. The proposed rule 
is sufficiently broad, however, to allow the Membership Department 
to request such information if deemed appropriate in a specific 
case.
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    Phlx is also proposing to move Rule 900.2(d), which addresses 
appeals from denials of membership or permit applications by the 
Membership Department, to new Rule 923. In addition, Phlx proposes 
broadening the scope of the moved rule to apply to any adverse decision 
of the Membership Department, so that the rule applies to decisions 
with respect to market making under Rule 910. Rule 923 provides that if 
the Membership Department takes an adverse action with respect to a 
membership application, permit application, or other matter for which 
the Membership Department has responsibility, the department will 
notify the applicant in writing of the specific grounds for denial and 
the applicant shall have a right to a hearing. An appeal would be heard 
by a special committee of the Board of Directors

[[Page 54348]]

composed of three Directors, of whom at least one shall be a Public 
Director. The person requesting review may appeal by filing a written 
notice thereof with the Secretary of the Exchange within ten days after 
a decision. The person requesting review is permitted to submit a 
written statement to this special committee. The Secretary of the 
Exchange shall certify the record of the proceeding, if any, and the 
written decision and shall submit these documents to the special 
committee. The special committee's review of the action shall be based 
solely on the record, the written decision and any statement submitted 
by the person requesting the review. The special committee shall 
prepare and deliver to such person a written decision and reasons 
therefor. If the special committee affirms the action, the action shall 
become effective ten days from the date of the special committee's 
decision. The decision of the special committee may not be appealed to 
the Board of Directors, and would thus constitute final action by the 
Exchange.
2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\7\ in general, and with Section 
6(b)(5) of the Act,\8\ 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. Specifically, the proposed 
rule change will make it clear that member organizations seeking to 
make markets on PSX for the first time will be required to submit 
information necessary to allow the Phlx Membership Department to assess 
the capability of the member organization to act in that capacity. The 
rule change will also relieve member organizations seeking to make 
markets on PSX for the first time from the requirement to submit to 
pre-review by the Membership Department in instances where they have 
already undergone such a review under the rules of FINRA, NASDAQ or BX. 
The rule change also broadens the scope of what may be appealed to a 
special committee of the Board of Directors to include any adverse 
action of the Membership Department for which it has responsibility. 
The Exchange believes that it is appropriate to apply a consistent 
process to all adverse actions of the Membership Department, including 
adverse decisions concerning applications to obtain and maintain the 
status of a Market Maker, as it will lessen the burden on member 
organizations should they otherwise be required to comply with multiple 
appellate processes. Moreover, adopting a uniform appellate process 
will promote consistent reviews of matters concerning membership-
related adverse actions. Accordingly, Phlx believes that the rule 
change will remove impediments to and perfect the mechanism of a free 
and open market, and protect investors and the public interest, because 
it will clarify the scope of regulatory review by the Phlx Membership 
Department while also relieving member organizations of unnecessary 
regulatory burdens.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4) [sic] and (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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Specifically, by 
clarifying the scope of regulatory review by the Phlx Membership 
Department of member organizations seeking to become market makers on 
PSX, the rule change reflects appropriate regulatory reviews with 
respect to member organizations engaging in a new market activity and 
provides a uniform process applied to appeals of all adverse actions 
taken by the Membership Department. To the extent that this review may 
be seen as a burden on competition because it may limit the extent to 
which a member organization may make markets, or slow the timing of a 
member organization entering this business, such burdens are 
appropriate in light of the importance of assessing a member 
organization's capability. Moreover, the change to provide that review 
is not necessary in the case of member organizations approved to make 
markets by other SROs will help mitigate any burden created by the new 
rule by eliminating duplicative regulatory reviews. The Exchange 
believes that the efficiency and consistency that comes from applying a 
uniform process to any adverse action of the Membership Department 
lessens the burden on a member organization that appeals such an action 
as it would otherwise be required to follow differing processes, 
depending on the nature of the adverse action taken.

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 \9\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(a)(ii) [sic].
    \10\ 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.

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-2013-84 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-2013-84. This file 
number should be included on the

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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 publicly available. All submissions should refer to 
File Number SR-Phlx-2013-84 and should be submitted on or before 
September 24, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-21298 Filed 8-30-13; 8:45 am]
BILLING CODE 8011-01-P