Document ID: SEC-2021-0726-0001
Agency: sec
Document Type: Notice
Title: Order: Nasdaq PHLX, LLC
Posted Date: 2021-05-18T04:00Z

[Federal Register Volume 86, Number 94 (Tuesday, May 18, 2021)]
[Notices]
[Pages 26997-26999]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10391]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91877]

Order Granting Application by Nasdaq PHLX LLC for an Exemption 
Pursuant to Section 36(a) of the Exchange Act From the Rule Filing 
Requirements of Section 19(b) of the Exchange Act With Respect to 
Certain Rules Incorporated by Reference

May 12, 2021.
    Nasdaq PHLX LLC (``PHLX'' or the ``Exchange'') has filed with the 
Securities and Exchange Commission (``Commission'') an application for 
an exemption under Section 36(a)(1) of the Securities Exchange Act of 
1934 (``Act'' or ``Exchange Act'') \1\ from the rule filing 
requirements of Section 19(b) of the Act \2\ with respect to certain 
rules of the Financial Industry Regulatory Authority, Inc. (``FINRA'') 
that the Exchange seeks to incorporate by reference.\3\ Section 36 of 
the Exchange Act authorizes the Commission to conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class thereof, from any provision of the Exchange Act or rule 
thereunder, if necessary or appropriate in the public interest and 
consistent with the protection of investors.
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    \1\ 15 U.S.C. 78mm(a)(1).
    \2\ 15 U.S.C. 78s(b).
    \3\ See Letter from Angela Dunn, Principal Associate General 
Counsel, to J. Matthew DeLesDernier, Assistant Secretary, Securities 
and Exchange Commission, dated March 5, 2021 (``Exemptive 
Request'').
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    On March 17, 2021, the Commission published notice of the 
Exchange's proposal to adopt rules that update an existing but outdated 
reference to an NASD rule to refer instead to a current FINRA rule, and 
that incorporate certain FINRA rules related to recordkeeping 
requirements.\4\ The proposed rule change was immediately effective 
upon filing pursuant to Section

[[Page 26998]]

19(b)(3)(A)(iii) \5\ of the Exchange Act 4, and Rule 19b-4(f)(6) 
thereunder.\6\
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    \4\ See Exchange Act Release No. 91342 (Mar. 17, 2021), 86 FR 
15538 (Mar. 23, 2021) (SR-PHLX-2021-13).
    \5\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \6\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested, pursuant to Rule 0-12 under the 
Exchange Act,\7\ that the Commission grant the Exchange an exemption 
from the rule filing requirements of Section 19(b) of the Act for 
changes to those PHLX rules that are effected solely by virtue of a 
change to a FINRA rule that is incorporated by reference.\8\ 
Specifically, PHLX requests that it be permitted to incorporate changes 
made to each FINRA rule (or series of rules as the case may be) that is 
incorporated by reference in the following PHLX Rules, without the need 
for the Exchange to file separately the same proposed rule changes 
pursuant to Section 19(b) of the Exchange Act:\9\
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    \7\ 17 CFR 240.0-12.
    \8\ See Exemptive Request, supra note 3, at 2.
    \9\ Id.
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     General 9, Section 19 (Discretionary Accounts), which 
incorporates by reference FINRA Rule 3260;
     General 9, Section 30 (Books and Records), which 
incorporates by reference FINRA Rule 4511; and
     General 9, Section 45 (Customer Account Information), 
which incorporates by reference FINRA Rule 4512.
    The Exchange states that the direct incorporations by reference of 
FINRA rules, which are regulatory in nature,\10\ are intended to ensure 
that the Exchange's Rulebook will remain consistent at all times with 
respect to the Exchange's Rulebook pertaining to Discretionary 
Accounts, Books and Records, and Customer Account Information, and for 
that reason, the Exchange believes the exemption is appropriate.\11\
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    \10\ See id. The Exchange represents that the FINRA rules 
proposed to be incorporated by reference are not trading rules.
    \11\ See id. at 3.
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    The Exchange represents that, as a condition to the requested 
exemption from Section 19(b) of the Exchange Act, the Exchange will 
provide written notice to its members whenever FINRA proposes a change 
to a cross-referenced rule.\12\ Such notice will alert Exchange members 
to the proposed rule change and give them an opportunity to comment on 
the proposal.\13\
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    \12\ The Exchange represents that it will provide such notice on 
its website in the same website location it uses to post its own 
proposed rule change filings pursuant to Rule 19b-4(l) within the 
same timeframe required by such Rule. The PHLX website will also 
include a link to the FINRA website where applicable proposed rule 
change is posted. See id. at 2.
    \13\ See id.
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    The Commission has issued exemptions similar to the Exchange's 
request.\14\ In granting one such exemption in 2010, the Commission 
repeated a prior 2004 Commission statement that it would consider 
similar future exemption requests from other SROs, provided that:
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    \14\ See, e.g., Exchange Act Release Nos. 83296 (May 21, 2018), 
83 FR 24362 (May 25, 2018) (order granting NYSE National, Inc.'s 
exemptive request relating to rules of FINRA incorporated by 
reference); 83040 (April 12, 2018), 83 FR 17198 (April 18, 2018) 
(order granting MIAX PEARL's exemptive request relating to rules of 
MIAX incorporated by reference); 78101 (June 17, 2016), 81 FR 41141, 
41165 (June 23, 2016) (order granting application for registration 
as a national securities exchange of Investors' Exchange, LLC and 
exemptive request relating to rules of FINRA incorporated by 
reference); 76998 (January 29, 2016), 81 FR 6066, 6083-84 (February 
4, 2016) (order granting application for registration as a national 
securities exchange of ISE Mercury, LLC (now known as Nasdaq MRX, 
LLC) and exemptive request relating to rules of the International 
Securities Exchange, LLC (now known as Nasdaq ISE, LLC) (``ISE'') 
incorporated by reference, including index options rules); 70050 
(July 26, 2013), 78 FR 46622, 46642 (August 1, 2013) (order granting 
application for registration as a national securities exchange of 
Topaz Exchange, LLC (now known as Nasdaq GEMX, LLC) and exemptive 
request relating to rules of ISE incorporated by reference, 
including index options rules); 61152 (December 10, 2009), 74 FR 
66699, 66709-10 (December 16, 2009) (order granting application for 
registration as a national securities exchange of C2 Options 
Exchange, Incorporated and exemptive request relating to rules of 
CBOE incorporated by reference, including index options rules). See 
also, e.g., Exchange Act Release No. 61534 (February 18, 2010), 75 
FR 8760 (February 25, 2010) (order granting BATS Exchange, Inc.'s 
exemptive request relating to rules incorporated by reference by the 
BATS Exchange Options Market rules) (``BATS Options Market Order'').
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     An SRO wishing to incorporate rules of another SRO by 
reference has submitted a written request for an order exempting it 
from the requirement in Section 19(b) of the Exchange Act to file 
proposed rule changes relating to the rules incorporated by reference, 
has identified the applicable originating SRO(s), together with the 
rules it wants to incorporate by reference, and otherwise has complied 
with the procedural requirements set forth in the Commission's release 
governing procedures for requesting exemptive orders pursuant to Rule 
0-12 under the Act; \15\
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    \15\ See 17 CFR 240.0-12; Exchange Act Release No. 39624 
(February 5, 1998), 63 FR 8101 (February 18, 1998) (Commission 
Procedures for Filing Applications for Orders for Exemptive Relief 
Pursuant to Section 36 of the Act).
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     The incorporating SRO has requested incorporation of 
categories of rules (rather than individual rules within a category) 
that are not trading rules (e.g., the SRO has requested incorporation 
of rules such as margin, suitability, or arbitration); and
     The incorporating SRO has reasonable procedures in place 
to provide written notice to its members each time a change is proposed 
to the incorporated rules of another SRO.\16\
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    \16\ See BATS Options Market Order, supra note 14 (citing 
Exchange Act Release No. 49260 (February 17, 2004), 69 FR 8500 
(February 24, 2004) (order granting exemptive request relating to 
rules incorporated by reference by several SROs) (``2004 Order'')).
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    The Commission believes that the Exchange has satisfied each of 
these conditions. The Commission also believes that granting the 
Exchange an exemption from the rule filing requirements under Section 
19(b) of the Exchange Act will promote efficient use of Commission and 
Exchange resources by avoiding duplicative rule filings based on 
simultaneous changes to identical rule text sought by more than one 
SRO.\17\ Finally, the Commission notes that any changes that the 
Exchange would make to General 9, Section 19 (Discretionary Accounts), 
General 9, Section 30 (Books and Records), and General 9, Section 45 
(Customer Account Information), other than those changes that 
incorporate by reference changes to the FINRA rules specifically 
referenced herein, are not exempted from Section 19(b) of the Exchange 
Act. The Commission therefore finds it appropriate in the public 
interest and consistent with the protection of investors to exempt the 
Exchange from the rule filing requirements under Section 19(b) of the 
Exchange Act with respect to the following PHLX rules: General 9, 
Section 19 (Discretionary Accounts), which incorporates by reference 
FINRA Rule 3260; General 9, Section 30 (Books and Records), which 
incorporates by reference FINRA Rule 4511; and General 9, Section 45 
(Customer Account Information), which incorporates by reference FINRA 
Rule 4512. This exemption is conditioned upon the Exchange promptly 
providing written notice to its members whenever FINRA changes a rule 
that the Exchange has incorporated by reference.
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    \17\ See id. at 8761. See also 2004 Order, supra note 16, at 
8502.
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    Accordingly, it is ordered, pursuant to Section 36 of the Exchange 
Act,\18\ that the Exchange is exempt from the rule filing requirements 
of Section 19(b) of the Act solely with respect to changes to PHLX 
Rules General 9, Section 19 (Discretionary Accounts), which 
incorporates by reference FINRA Rule 3260; General 9 Section 30 (Books 
and Records), which incorporates by reference FINRA Rule 4511; and 
General 9, Section 45 (Customer Account Information), which 
incorporates by reference FINRA Rule 4512, provided that the Exchange 
promptly provides

[[Page 26999]]

written notice to its members whenever FINRA proposes to change a rule 
that the Exchange has incorporated by reference.
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    \18\ 15 U.S.C. 78mm.

    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)(76).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10391 Filed 5-17-21; 8:45 am]
BILLING CODE 8011-01-P