Document ID: SEC-2016-0112-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2016-01-21T05:00Z

[Federal Register Volume 81, Number 13 (Thursday, January 21, 2016)]
[Notices]
[Pages 3527-3529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01054]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76902; File No. SR-Phlx-2016-01]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Delete 
Phlx Rules 792, 794, 797, and 798

January 14, 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 January 4, 2016, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the

[[Page 3528]]

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 Substance 
of the Proposed Rule Change

    The Exchange proposes to delete Rules 792, 794, 797, and 798 from 
the Phlx rules.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.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 purpose of this proposed rule change is to delete Rules 792, 
794, 797, and 798, which generally concern member organization 
governance and ownership. As discussed below, the Exchange has 
determined that these rules are anachronistic and no longer serve a 
purpose. Consequently, the Exchange is proposing to eliminate the rules 
from the rulebook to avoid any confusion that may be caused by 
retaining them.
Rule 792
    Rule 792 concerns control of the voting stock of a member 
organization. The rule requires the officers and directors of a member 
organization that is a corporation to have working control of such 
member organization. To comply with the rule, such officers and 
directors must own at least fifty-five per cent (55%) of the voting 
stock, and shall have contributed at least thirty per cent (30%) of the 
total capital represented by all classes of stock. The rule allows the 
Exchange to waive these requirements in specific cases, when it appears 
that a majority of the officers and a majority of the directors are 
actively engaged in the conduct of the business of such member 
organization. As such, the rule is designed to ensure the management of 
a member organization has more than a simple majority vote and a 
significant investment in the firm.
    The Exchange believes that the rule is no longer relevant. The rule 
was adopted at a time when the Exchange was owned by its members, and 
member organizations (then known as ``member corporations'') were small 
and privately held. Many of the Exchange's current member organizations 
are large firms, which are publicly held and have a significant number 
of issued shares. As a consequence, it is unreasonable to require the 
management of the member organization to hold at least 55% of the 
voting stock and to contribute at least 30% of the member 
organization's total capital. Moreover, the Exchange notes that Phlx's 
affiliate exchanges NASDAQ OMX BX (``BX'') and The Nasdaq Stock Market 
(``Nasdaq'') do not have such restrictive ownership requirements. 
Accordingly, the Exchange does not believe the rule serves a regulatory 
purpose and it is accordingly proposing to delete the rule.
Rule 794
    Rule 794 concerns notice of the assignment of the voting stock of a 
member organization. Specifically, the rule requires that no holder of 
ten per cent (10%) or more of the common or voting stock in a member 
organization that is a corporation may sell, assign, transfer, pledge, 
or hypothecate their holdings of common or voting stock in such member 
organization, except to such member organization or to officers or 
directors thereof, without written notice to the Exchange. The rule 
allows the Exchange to keep apprised of the significant holders of the 
member organization's voting stock. Such holders would exercise 
significant control of the member organizations.
    Similar to Rule 792 discussed above, the Exchange believes that the 
rule is no longer relevant. The rule was adopted at a time when the 
Exchange was owned by its members, and member organizations were small 
and privately held. As noted, many of the Exchange's member 
organizations now are large firms, which are publicly held and have a 
significant number of issued shares. As a consequence, it is 
unreasonable to require notice of the sale, assignment, transfer, 
pledge, or hypothecation of 10% or more of the holdings of common or 
voting stock of the member organization. Moreover, to the extent a 
member organization is publicly held, the Exchange may readily access 
the largest holders of member organization's stock. To the extent the 
member organization is privately held, the Exchange may request a list 
of shareholders from the member organization. The ownership of a member 
organization is not a regulatory issue, but rather it was an issue to 
the Exchange when the requirement was adopted because it was member-
owned. As such, influence of a member organization translated to 
influence of the Exchange. The Exchange is now a wholly-owned 
subsidiary of a publicly-traded company; therefore, member organization 
influence as owners of the Exchange is no longer an issue.\3\ The 
Exchange notes that neither BX nor Nasdaq have a similar requirement. 
As a consequence, the Exchange does not believe the rule serves a 
regulatory purpose and it is accordingly proposing to delete the rule.
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    \3\ The Exchange is wholly-owned by Nasdaq, Inc.
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Rule 797
    Rule 797 concerns loans to officers and directors of member 
organizations. Specifically, the rule prohibits a member organization 
from making any loan to any officer or director of the member 
organization. The Exchange believes that the rule is outdated and a 
remnant from when the Exchange was a member-owned organization. The 
Exchange notes that neither BX nor Nasdaq has a similar prohibition. 
Moreover, the Exchange notes that corporate law is generally a function 
of state law, which in most cases allows loans to officers and 
directors.\4\ Thus, the Exchange does not believe the rule serves a 
regulatory purpose and it is accordingly proposing to delete the rule.
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    \4\ See, e.g., DEL. CODE ANN. tit. 8, Sec.  143 (2015).
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Rule 798
    Rule 798 discusses what is required of a corporation to be issued a 
permit by the Exchange. A permit provides the right to a member to 
trade on the Exchange and the right to vote for a Member Representative 
Director. Permits are established by the Board of Directors. A 
corporation may be issued a permit by the Exchange if the corporation 
is incorporated under the laws of the Commonwealth of Pennsylvania, and 
all of its shares are owned by the Exchange. The rule further provides 
that such a corporate member whose shares are owned by the Exchange is 
not liable for dues. This

[[Page 3529]]

rule was intended to permit Exchange membership for the Exchange's 
subsidiary, the Stock Clearing Corporation of Philadelphia 
(``SCCP'').\5\ The Exchange has since wound down SCCP and made it 
inactive. Thus, the Exchange is deleting the rule.
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    \5\ See Securities Exchange Act Release No. 57134 (January 11, 
2008), 73 FR 3306 (January 17, 2008) (SR-Phlx-2005-68) at note 6 
(establishing the purpose of the requirement).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\7\ in particular, in that it 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 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. The Exchange believes the proposed 
changes are consistent with just and equitable principles of trade 
because they delete outdated and potentially confusing rules. Each of 
the rules that the Exchange proposes to delete is anachronistic and 
does not have application to the Exchange's current function as a for-
profit exchange whereby members no longer own the Exchange,\8\ but 
rather are granted permits to trade thereon. Thus, the governance and 
ownership requirements of Rules 792, 794 and 797, which generally 
restrict member organizations from taking corporate actions that they 
would otherwise be able to do, are no longer relevant. Eliminating Rule 
798 is consistent with just and equitable principles of trade because 
the Exchange no longer operates SCCP, which was the sole reason for the 
rule's adoption. Thus, removing it from the rules promotes clarity and 
eliminates potential confusion caused by allowing it to remain.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ See note 3 above.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. Rather it is designed to promote competition among exchanges 
by removing archaic and overly restrictive rules in comparison to the 
rules of other exchanges. Thus, the Exchange is able to compete without 
the needless restrictions currently imposed by the deleted rules. Last, 
the proposed changes promote clarity in the application of the 
Exchange's rules by eliminating unneeded rules.

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 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) 
thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of 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.
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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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
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-2016-01 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-2016-01. 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-2016-01 and should be 
submitted on or before February 11, 2016.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-01054 Filed 1-20-16; 8:45 am]
BILLING CODE 8011-01-P