Document ID: SEC-2015-1713-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2015-10-23T04:00Z

[Federal Register Volume 80, Number 205 (Friday, October 23, 2015)]
[Notices]
[Pages 64462-64464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26911]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76187; File No. SR-Phlx-2015-80]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Options Floor Broker Management System

October 19, 2015.
    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 7, 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 and 
II, 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 extend the implementation rollout of its 
enhanced Options Floor Broker Management System, described in more 
detail below.

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
    Currently and until November 3, 2015, the Exchange operates two 
Floor Broker Management Systems concurrently on the options trading 
floor: The original Floor Broker Management System operating since 2005 
(``FBMS 1''); and the enhanced Floor Broker Management System (``FBMS 
2''). The purpose of the proposal is to continue the concurrent 
operation of FBMS 1 and FBMS 2 for a temporary period ending April 1, 
2016 for the reasons stated below; otherwise the Exchange's concurrent 
operation of FBMS 1 and FBMS 2 would expire November 3, 2015.
    FBMS 1 enables Floor Brokers and/or their employees to enter, 
route, and report transactions stemming from options orders received on 
the Exchange. FBMS 1 also establishes an electronic audit trail for 
options orders represented by Floor Brokers on the Exchange. Floor 
Brokers can also use FBMS 1 to submit orders to Phlx XL, rather than 
executing the orders in the trading crowd.
    FBMS 2 was launched in March 2014. With FBMS 2, all options 
transactions on the Exchange involving at least one Floor Broker are 
required to be executed by FBMS 2. In connection with order execution, 
the Exchange allows FBMS 2 to execute two-sided orders entered by Floor 
Brokers, including multi-leg orders up to 15 legs, after the Floor 
Broker has represented the orders in the trading crowd. FBMS 2 also 
provides Floor Brokers with an enhanced functionality called the 
complex calculator that calculates and displays a suggested price of 
each individual component of a multi-leg order, up to 15 legs, 
submitted on a net debit or credit basis.
    The Exchange received approval to implement FBMS 2 as of June 1, 
2013,\3\ and delayed its implementation until July 2013,\4\ until 
September 2013,\5\ until December 2013,\6\ and until March 2014.\7\ 
Implementation began on March 7, 2014, with FBMS 2 operating 
concurrently with FBMS 1. The Exchange intended to retire FBMS 1 after 
a specified implementation period for FBMS 2. FBMS 2 has been fully 
rolled out to all Floor Brokers and in all options. Nevertheless, the 
Exchange delayed the retirement of FBMS 1 until September 1, 2014,\8\ 
November 3, 2014.\9\ and, most recently, until November 3, 2015,\10\ 
for reasons relating to the performance of FBMS 2.\11\
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    \3\ Securities Exchange Act Release No. 69471 (April 29, 2013), 
78 FR 26096 (May 3, 2013) (SR-Phlx-2013-09).
    \4\ Securities Exchange Act Release No. 69811 (June 20, 2013), 
78 FR 38422 (June 26, 2013) (SR-Phlx-2013-67).
    \5\ Securities Exchange Act Release No. 70141 (August 8, 2013), 
78 FR 49565 (August 14, 2013) (SR-Phlx-2013-83).
    \6\ Securities Exchange Act Release No. 70629 (October 8, 2013), 
78 FR 62852 (October 22, 2013) (SR-Phlx-2013-100).
    \7\ Securities Exchange Act Release No. 71212 (December 31, 
2013), 79 FR 888 (January 7, 2014) (SR-Phlx-2013-129).
    \8\ Securities Exchange Act Release No. 72135 (May 9, 2014), 79 
FR 27966 (May 15, 2014) (SR-Phlx-2014-33).
    \9\ Securities Exchange Act Release No. 73246 (September 29, 
2014), 79 FR 59874 (October 3, 2014) (SR-Phlx-2014-59).
    \10\ Securities Exchange Act Release No. 73586 (November 13, 
2014), 79 FR 68931 (November 19, 2014) (SR-Phlx-2014-71).
    \11\ The Exchange previously described those performance issues. 
Id.
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    The purpose of the delay was originally to repair FBMS 2, and then 
ultimately the Exchange determined to replace it with a new system. The 
Exchange contracted with a third-party entity to provide an alternative 
system (``FBMS 3'') to ultimately replace both FBMS 1 and FBMS 2. The 
Exchange had intended to implement FBMS 3 by November 3, 2015, but, 
based on recent estimates from the third-party entity, it will not be 
ready until March 2016. There were inadvertent delays in the 
construction of the new system.
    During this additional time period, the Exchange will continue to 
permit Floor Brokers to use both FBMS 1 and FBMS 2 based on their 
business needs and Floor Brokers can choose whether to use one or both. 
Both FBMS 1 and FBMS 2 will continue to be available in

[[Page 64463]]

all options and to all Floor Brokers. For example, a Floor Broker will 
be able to use FBMS 1 for one order and FBMS 2 for the next order. 
Accordingly, the Exchange believes that the performance issues with 
FBMS 2 are less likely and should decrease because the Floor Broker 
also has the option to use FBMS 1.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \13\ in particular, in that it is designed to 
promote just and equitable principles of trade and protect investors 
and the public interest, by providing options Floor Brokers with two 
different FBMS offerings for order entry and processing. Despite its 
performance issues, FBMS 2 offers many beneficial features to the Floor 
Brokers that FBMS 1 does not, such as the complex calculator and 
increased automation described above, such that the Exchange has 
determined not to shut down FBMS 2. Having two options for order entry 
and processing should enable Floor Brokers to operate their businesses 
and comply with the relevant rules, which is consistent with the 
protection of investors and the public interest. Continuing to operate 
both FBMS 1 and FBMS 2 concurrently for a temporary period should also 
promote just and equitable principles of trade by providing Floor 
Brokers with the tools to enter and process their orders efficiently. 
The proposal is not unfairly discriminatory because all Floor Brokers 
will be able to use both FBMS 1 and FBMS 2.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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. The Exchange believes that 
permitting Floor Brokers to use both FBMS 1 and FBMS 2 for an 
additional period of time while the Exchange receives delivery of a new 
system should allow it to compete with other floor-based exchanges and 
help the Exchange's Floor Brokers compete with floor brokers on other 
options exchanges.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No comments were solicited. One comment letter was received by the 
Exchange when the Exchange communicated to the Floor Brokers that the 
old FBMS would be retired on September 1, 2014.\14\ The Comment Letter 
requested the Commission and Phlx postpone the implementation rollout 
of the new FBMS from September 1, 2014 to a later date. The Comment 
Letter alleges that the Floor Brokers did not have proper notice of the 
end of the implementation period resulting in the termination of the 
old FBMS. This is not relevant to the proposal at hand. Also, the 
Comment Letter requests that the new FBMS be postponed to ensure the 
public outcry system is maintained. The Exchange notes that under FBMS 
2, orders will continue to be represented in the trading crowd; order 
exposure has not been eliminated. The Exchange is merely modernizing 
how orders are executed and reported to support enhancements to the 
maintenance of an accurate audit trail.
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    \14\ See letter from various Phlx Floor Brokers to Mary Jo 
White, Chairwoman of the Securities and Exchange Commission, dated 
August 28, 2014 (``Comment Letter'').
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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)(iii) of the Act \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\ A proposed rule 
change filed under Rule 19b-4(f)(6) normally does not become operative 
prior to 30 days after the date of filing.\17\ Rule 19b-4(f)(6)(iii), 
however, permits the Commission to designate a shorter time if such 
action is consistent with the protection of investors and the public 
interest.\18\
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    \15\ 15 U.S.C. 78s(b)(3)(a)(iii).
    \16\ 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.
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ Id.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Exchange has indicated that it has experienced 
performance issues with FBMS 2 and that it needs additional time to 
implement the new FBMS 3. Until FBMS 3 becomes available, the Exchange 
represents that it will continue to operate FBMS 1 and FBMS 2 
concurrently and that all Floor Brokers may use either FBMS. Based on 
the foregoing, the Commission has determined to waive the 30-day 
operative date so that the proposal may take effect upon filing.\19\
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    \19\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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.\20\ If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(C).
    \21\ Id.
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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-2015-80 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-2015-80. 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

[[Page 64464]]

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 offices 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-2015-80, and should be submitted on or before 
November 13, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26911 Filed 10-22-15; 8:45 am]
 BILLING CODE 8011-01-P