Document ID: SEC-2016-1931-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX, LLC
Posted Date: 2016-11-03T04:00Z

[Federal Register Volume 81, Number 213 (Thursday, November 3, 2016)]
[Notices]
[Pages 76637-76639]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26511]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79185; File No. SR-Phlx-2016-104]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
of Proposed Rule Change To Amend Phlx Rule 748, Supervision

October 28, 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 October 14, 2016, NASDAQ 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to a proposal [sic] to amend Phlx Rule 748, 
Supervision, as explained further below.
    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 amend several provisions of Rule 748. 
The proposed rule change is intended to modernize, upgrade and 
strengthen the Exchange's rules pertaining to supervisory obligations 
of its members and member organizations.
Rule 748(a)
    Rule 748(a) currently provides in the first paragraph that each 
office, location, department, or business activity of a member or 
member organization (including foreign incorporated branch offices) 
shall be under the supervision and control of the member or member 
organization establishing it and of an appropriately qualified 
supervisor. The Exchange is amending the first paragraph of Rule 748(a) 
to clarify and state clearly that each trading system and internal 
surveillance system of a member or member organization (including 
foreign incorporated branch offices) shall, inasmuch as they are 
aspects of their business activity, be under the supervision and 
control of the member or member organization establishing it and of an 
appropriately qualified supervisor.
Rule 748(b)
    Rule 748(b), Designation of Supervisor by Member Organizations, 
currently provides in relevant part that the general partners or 
directors of each member organization shall provide for appropriate 
supervisory control and shall designate a general partner or principal 
executive officer to assume overall authority and responsibility for 
internal supervision and control of the organization and compliance 
with securities' (sic) laws and regulations, including the By-Laws and 
Rules of the Exchange. It provides that the designated person shall 
delegate to qualified principals or qualified employees responsibility 
and authority for supervision and control of each office, location, 
department, or business activity, (including foreign incorporated 
branch offices), and provide for

[[Page 76638]]

appropriate written procedures of supervision and control. The Exchange 
proposes to amend Rule 748(b) to provide that the delegated person 
shall likewise delegate to qualified principals or qualified employees 
responsibility and authority for supervision and control of each 
trading system and internal surveillance system.\3\
---------------------------------------------------------------------------

    \3\ The Exchange is also deleting the extraneous apostrophe 
following the word ``securities''.
---------------------------------------------------------------------------

Rule 748(c)
    Rule 748(c) currently provides that each person with supervisory 
control, as described in paragraphs (a) and (b) of Rule 748, must meet 
the Exchange's qualification requirements for supervisors, including 
successful completion of the appropriate examination. The Exchange 
proposes to add to Rule 748(c) a new requirement that each member or 
member organization must make reasonable efforts to determine that each 
person with supervisory control, as described in paragraphs (a) and (b) 
of Rule 748, is qualified by virtue of experience or training to carry 
out his or her assigned responsibilities.
Rule 748(g)
    Rule 748(g), Office Inspections, currently provides that each 
member or member organization for which the Exchange is the DEA shall 
inspect each office or location (including foreign incorporated branch 
offices) of the member or member organization according to a cycle that 
shall be established in its written supervisory procedures. In 
establishing such inspection cycle, the member or member organization 
shall give consideration to the nature and complexity of the securities 
activities for which the office or location is responsible, the volume 
of business done, and the number of registered representatives, 
employees, and associated persons at each office or location. Rule 
748(g) is proposed to be amended to provide that an inspection may not 
be conducted by any person within that office or location who has 
supervisory responsibilities or by any individual who is directly or 
indirectly supervised by such person. The Exchange also proposes to add 
language requiring the examination schedule and an explanation of the 
factors considered in determining the frequency of the examinations in 
the cycle to be set forth in the member or member organization's 
written supervisory procedures. It also proposes to require that the 
inspection be reasonably designed to assist in preventing and detecting 
violations of, and achieving compliance with, applicable securities 
laws and regulations, and with applicable Exchange rules.
Rule 748(h)
    Rule 748(h) in the first paragraph currently requires each member 
or member organization to establish, maintain, and enforce written 
supervisory procedures, and a system for applying such procedures, to 
supervise the types of business(es) in which the member or member 
organization engages and to supervise the activities of all registered 
representatives, employees, and associated persons. The written 
supervisory procedures and the system for applying such procedures 
shall reasonably be expected to prevent and detect, insofar as 
practicable, violations of the applicable securities laws and 
regulations, including the By-Laws and Rules of the Exchange. The 
Exchange proposes to substitute the word ``designed'' for the word 
``expected.''
    Rule 748(h) in the second paragraph currently requires that the 
written supervisory procedures set forth the supervisory system 
established by the member or member organization and include the name, 
title, registration status, and location of all supervisory personnel 
required by this rule, the dates for which supervisory designations 
were or are effective, and the responsibilities of supervisory 
personnel as these relate to the types of business(es) the member or 
member organization engages in, and securities laws and regulations, 
including the By-Laws and Rules of the Exchange. The Exchange proposes 
to add a requirement that this record be preserved for a period of not 
less than three years, the first two in an easily accessible place.
    Rule 748(h) in the third paragraph currently requires a copy of the 
written supervisory procedures to be kept and maintained at each 
location where supervisory activities are conducted on behalf of the 
member or member organization. It requires each member or member 
organization to amend its written supervisory procedures as appropriate 
within a reasonable time after changes occur in supervisory personnel 
or supervisory procedures, and to communicate such changes throughout 
its organization within a reasonable time. The Exchange proposes to 
amend Rule 748(h) to likewise amend and communicate changes to its 
written supervisory procedures as appropriate within a reasonable time 
after changes occur in applicable securities laws and regulations and 
Exchange rules.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\5\ 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 enhancing its rules relating to supervision as set forth in Rule 
748. Requiring increased comprehensive supervision by members and 
member organizations of their activities should promote the Exchange's 
ability to enforce compliance by members and member organizations with 
the Act and the regulations thereunder.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Amending Rules 748(a) and (b) to require trading systems and 
internal surveillance systems to be under the supervision and control 
of the member or member organization establishing them and of an 
appropriately qualified supervisor, and requiring the general partner 
or principal executive officer with overall authority and 
responsibility for internal supervision and control of the organization 
and compliance with securities laws and regulations to delegate 
responsibility and authority for supervision and control of each 
trading system and internal surveillance system to qualified principals 
or qualified employees, should protect investors and the public 
interest by specifically requiring supervision and control of these 
aspects of the member or member organization's business by an 
appropriately qualified individual.
    The proposed amendment to Rule 748(c) should protect investors and 
the public interest by requiring that each person with supervisory 
control as described in Rules 748(a) and (b) to be qualified by virtue 
of experience or training to carry out his or her assigned 
responsibilities, such that the individual has the actual capacity to 
fulfill those responsibilities.
    The proposed amendments to Rule 748(g) regarding office inspections 
should protect investors and the public interest by minimizing the 
potential for conflicts of interest in the conduct of office 
inspections. The amendments would prohibit the required inspections 
from being conducted by any person within that office or location who 
has supervisory responsibilities or by any individual who is directly 
or indirectly supervised by such a person who may

[[Page 76639]]

be incentivized to minimize any compliance issues identified in the 
inspection. The proposed amendments to Rule 748(g) concerning the 
examination schedule and specifically requiring that the inspection be 
reasonably designed to assist in preventing and detecting violations 
of, and achieving compliance with, applicable securities laws and 
regulations and with applicable Exchange rules should assure that 
inspections take place with a predictable and adequate frequency and 
are reasonably designed to identify violations of applicable law and 
rules.
    The proposed amendments to Rule 748(h) are also designed to protect 
investors and the public interest, by requiring the written supervisory 
procedures to be preserved for a period of not less than three years, 
the first two in an easily accessible place, in order to facilitate 
identification of instances where the procedures were not followed. 
Stating that the written supervisory procedures and the system for 
applying such procedures shall reasonably be ``designed'' rather than 
``expected'' to prevent and detect violations clarifies the affirmative 
nature of the member or member organization's obligations under the 
rule when creating such procedures.
    Finally, the Rule 748(h) amendment requiring members or member 
organizations to update their written supervisory procedures following 
changes in applicable securities laws and regulations, and Exchange 
rules should promote the continued usefulness of the procedures in the 
context of ongoing changes in the regulatory environment in which 
members and member organizations conduct their business.

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 amendments will apply to 
all members and member organizations subject to Rule 748.

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-2016-104 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-2016-104. 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-2016-104 and 
should be submitted on or before November 25, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-26511 Filed 11-2-16; 8:45 am]
 BILLING CODE 8011-01-P