Document ID: SEC-2008-1336-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2008-10-01T04:00Z

[Federal Register: October 1, 2008 (Volume 73, Number 191)]
[Notices]               
[Page 57181-57183]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01oc08-137]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58613; File No. SR-Phlx-2008-65]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Administration and Enforcement of Certain Rules Pertaining to XLE

September 22, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given that on 
September 5, 2008, 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 Phlx. 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, pursuant to Section 19(b)(1) of the Act \3\ and Rule 
19b-4 thereunder,\4\ proposes to change the administration and 
enforcement of certain rules in light of the fact that the Exchange 
will cease operation of the technology used to operate XLE[supreg],\5\ 
the Exchange's equity trading system, on or before October 24, 2008 
(the ``Shutdown''). At this time, the Exchange is not proposing to 
amend the text of any rules, but simply to change the administration 
and enforcement of certain rules, as described below. The Shutdown will 
not affect any other trading systems or markets at Phlx.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ See Securities Exchange Act Release No. 54538 (September 28, 
2006), 71 FR 59184 (October 6, 2006) (SR-Phlx-2006-43) (Order 
approving XLE[supreg]).

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[[Page 57182]]

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 change the 
administration and enforcement of certain rules in light of the 
Shutdown. A more in-depth rule review may occur in the future; this 
proposal is intended to cover the specific rules that make trading 
available on XLE, which will no longer be the case after the Shutdown.
Background
    The Exchange began XLE[supreg] in 2006. The Exchange has continued 
to operate XLE[supreg] through the July 2008 acquisition \6\ of the 
Exchange by the NASDAQ OMX Group, Inc. (``NASDAQ'') and up to the 
present time. Following a review of the operations of the Exchange, 
including XLE[supreg] and the fact that it currently accounts for less 
than one-tenth of one percent of national share volume in equity 
securities, it was determined to cease operation of the technology used 
to operate XLE[supreg].
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    \6\  See Securities Exchange Act Release No. 58179 (July 17, 
2008), 73 FR 42874 (July 23, 2008).
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The Shutdown
    The Exchange informed XLE Participants \7\ on August 4, 2008, that 
the Exchange intends to discontinue XLE[supreg] on or before October 
24, 2008.\8\ As XLE Participants discontinue their operations on 
XLE[supreg] and disconnect from the system, they will not be permitted 
to re-connect. Depending on the rate of disconnections, the Exchange 
may determine to implement the Shutdown before October 24, 2008. In 
that event, the Exchange would notify any remaining XLE Participants at 
least 14 calendar days prior to the Shutdown.
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    \7\ See Phlx Rule 1(nn).
    \8\ At that time, XLE Participants were given information about 
applying for membership in the NASDAQ Stock Market as a means to 
continue their equity trading operations, if they so desired. XLE 
Participants are free to apply for membership at any trading venue. 
Nothing in this proposed rule change is intended to restrict their 
access at any other venue.
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Current XLE Rules
    Today, XLE[supreg] is available for the acceptance of orders from 
XLE Participants and the execution of those orders.\9\ On the day of 
the Shutdown and thereafter, XLE[supreg] would no longer be available 
to accept orders and would not be available to execute any 
transactions. Any executions that took place before the Shutdown would 
clear and settle normally, even if such settlement was scheduled to 
take place after the Shutdown.
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    \9\ See Phlx Rules 181 and 185.
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    Further, the Exchange's optional outbound router, facilitated 
through PRO Securities LLC (``PRO''),\10\ will cease to accept and 
route orders on the day of the Shutdown because PRO will no longer 
receive any instructions to route orders to other trading centers from 
XLE[supreg].PRO was deemed to be a facility \11\ of the Exchange 
because of its function as the provider of these outbound router 
services. Following the Shutdown, PRO would no longer act in its 
capacity as an outbound router for the Exchange; therefore, the 
Exchange would no longer administer PRO as its facility.
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    \10\ See Phlx Rule 185(g). The function of PRO as the Exchange's 
optional outbound routing facility is more fully described in 
Section IV.D. of the SR-Phlx-2006-43 approval order. See supra note 
5.
    \11\ 15 U.S.C. 78c(a)(2).
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    Finally, the Exchange currently allows member organization that are 
XLE Participants and the members associated with them to register as 
Market Makers \12\ and Market Maker Authorized Trader (``MMATs''),\13\ 
respectively.\14\ After the Shutdown, the Exchange will cancel the 
registrations of any Market Makers and MMATs that remain on XLE[supreg] 
\15\ and such persons will cease to have the obligations associated 
with Market Makers and MMATs \16\ because after the Shutdown, there 
will be no venue for the Market Makers and MMATs to perform their 
functions. In addition, after the Shutdown, no further registrations 
for Market Makers or MMATs will be accepted because there will be no 
venue for Market Makers and MMATs to perform their functions.
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    \12\  See Phlx Rule 1(l).
    \13\ See Phlx Rule 1(m).
    \14\ See Phlx Rule 170(a), 171(b) and 172(a).
    \15\ At this time, only one Market Maker, that has one MMAT, is 
registered in three securities on XLE[supreg].
    \16\ See Phlx Rules 171 and 173.
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    To the extent that these rules state that orders ``will'' be 
accepted and registrations will be permitted, for example, that will 
not occur after the Shutdown. The trading rules applicable to XLE will 
continue to be in effect respecting trades that occurred before the 
Shutdown and remain in the Exchange's rulebook for ease of reference.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \18\ 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 providing notice of the Exchange's policy regarding the 
administration and enforcement of certain Phlx Rules in light of the 
Shutdown.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and paragraph (f)(1) of Rule 19b-4 thereunder. 
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.
    The Exchange designates the proposed rule change as constituting a 
stated policy, practice, or interpretation with respect, to the 
meaning, administration, or enforcement of an existing rule. 
Specifically, as described above, the Exchange has stated its policy 
regarding how it will administer

[[Page 57183]]

and enforce the enumerated portions of Phlx Rules 170-174, 181 and 185 
regarding XLE[supreg], Market Makers, MMATs and PRO in light of the 
Shutdown.

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-2008-65 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-2008-65. 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 
a.m. and 3 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-2008-65 and should be 
submitted on or before October 22, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-22960 Filed 9-30-08; 8:45 am]

BILLING CODE 8010-01-P