Document ID: SEC-2010-1780-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2010-11-22T05:00Z

[Federal Register Volume 75, Number 224 (Monday, November 22, 2010)]
[Notices]
[Pages 71155-71158]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-29343]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63318; File No. SR-Phlx-2010-148]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change Relating to Certain Membership Rules

November 16, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on November 5, 2010, 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 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 delete Exchange Rule 793, 
Affiliations--Dual and [sic] Multiple and amend Rule 908, Rights and 
Privileges of A-1 Permits, and Option Floor Procedure Advices 
(``OFPAs'') F-9, Dual Affiliations, and F-11, Splitting Order [sic], 
and Regulation 3, Identification Badges/Access Cards to provide that a 
Series A-1 permit holder may affiliate with two member organizations 
under common ownership.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
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    The Exchange is also proposing to make a clarifying amendment to 
Rule 908(h) regarding permit transfer. Finally, the Exchange desires to 
amend Exchange Rule 900.2 to add a provision for lapsed applications.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
at the principal office of the Exchange, and at

[[Page 71156]]

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 the proposed rule change is to eliminate and reserve 
Exchange Rule 793 titled Affiliations--Dual or Multiple and adopt a 
simple standard for multiple affiliations. Currently, Exchange Rule 793 
provides that no person shall at the same time be a partner, officer, 
director, stockholder, or associated person of more than one member or 
participant organization, nor shall he be affiliated in any manner with 
a non-member or non-participant organization which is engaged in the 
securities business, unless such affiliation has been disclosed to and 
approved in writing by the member and/or participant organization and 
such approval has been filed with the Office of the Secretary.
    Currently, a permit holder may affiliate with more than one member 
or participant organization so long as the Exchange is notified, in 
writing, of the affiliation. The affiliation involves an agreement 
between the member organizations and the permit holder. The Exchange is 
not a party to that arrangement. The Exchange requires: (i) An 
explanation of the business purpose for the arrangement; and (ii) 
identification of the individuals who shall supervise the business 
conduct of the permit holder that is multiply affiliated for compliance 
with the By-Laws and Rules. The Exchange may disapprove multiple 
affiliations which are inconsistent with Exchange standards of 
financial responsibility, operational capability, or compliance 
responsibility.
    Currently, an affiliation pursuant to Rule 793 allows a person to 
be associated with multiple member organizations for different 
purposes. Specifically, if a broker dealer sought membership on the 
Exchange for the purpose of electronic access to the Exchange's trading 
system, that broker dealer could seek an affiliation pursuant to Rule 
793. In this example, the affiliation would serve to provide membership 
status to a broker dealer without the need for the broker dealer to 
secure a permit. If a member organization is solely gaining electronic 
access to the Exchange, that member organization only requires one 
permit to qualify as a member organization.
    Another purpose for the dual affiliation could involve access to 
the Exchange's trading floor and the ability for permit holders to 
affiliate with multiple member organizations for greater flexibility. 
In this example floor traders could become affiliated with various 
related member organizations in order to satisfy certain trading and/or 
staffing requirements. If a member organization is conducting business 
on the Exchange's trading floor, each person associated with that 
member organization on the trading floor who functions in a trading 
capacity is required to have a permit. Every trader on the Exchange's 
trading floor is required to obtain a Series A-1 permit.
    The Exchange is proposing to eliminate this Rule \5\ and instead 
amend Exchange Rule 908 to allow a Series A-1 permit holder on the 
Exchange's trading floor to affiliate with up to two member 
organizations (a primary and a secondary member organization) that are 
under common ownership, a primary and a secondary member 
organization.\6\ The common ownership would be at least 75% common 
ownership between the member organizations. Both the primary and 
secondary member organizations would be required to notify the 
Membership Department of such an affiliation. Notification of such 
affiliation pursuant to 908(b)(i) would include: (i) An attestation of 
common ownership; (ii) the names of the individuals responsible for 
supervision of the permit holder; and (iii) the Exchange account 
numbers for billing purposes.\7\ A Series A-1 permit holder would also 
be required to comply with all current membership By-Laws and Rules. 
Specifically, By-Laws 13-2, 13-4 and 13-6, among others, would still 
condition membership.
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    \5\ The Commission notes the Exchange is proposing to reserve 
Rule 793.
    \6\ Notwithstanding applicable By-Laws and Rules conditioning 
membership, a Series A-1 permit holder on the Exchange's trading 
floor may be affiliated with up to two (2) member organizations that 
are under common ownership.
    \7\ Both the primary and secondary member organizations would be 
required to execute a form which the Membership Department shall 
make available once the Membership Department is notified of the 
proposed affiliation.
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    While a Series A-1 permit holder who is already affiliated with a 
member organization (primary affiliation) may affiliate with a member 
organization under common ownership (a secondary affiliation) as 
proposed herein, the permit holder must comply with all applicable 
registration, qualification and examination requirements. The proposed 
amendment to Rule 908(b)(i) allows the Series A-1 permit holder the 
ability to engage in trading activity on behalf of either the primary 
or secondary member organization that the permit holder is affiliated 
with as per Rule 908(b)(i). The Exchange's By-Laws and Rules would 
continue to apply to affiliated permit holders (permit holders with a 
primary and a secondary affiliation) and the affiliated member 
organizations (primary and secondary affiliations) with respect to 
trading, registration, qualifications, examinations and other 
membership requirements. Further, the Exchange would have access to 
information on the affiliate in order to allow it to carry out its 
regulatory responsibility with respect to the member organization and 
its affiliated persons.
    For example, an affiliated Series A-1 permit holder (a permit 
holder with a primary and a secondary affiliation) is required to 
display a badge on the Exchange's trading floor identifying on behalf 
of which member organization the permit holder is trading for on a 
particular day. For example whether the Series A-1 permit holder is 
trading for the primary or secondary member organization.\8\ The badge 
is used to identify the member organization with which the Series A-1 
permit holder is affiliated. The Series A-1 permit holder is required 
to maintain all the requisite qualifications, registrations and comply 
with all applicable trading rules at all times. The Series A-1 permit 
holder is required to specifically obtain and maintain all necessary 
registrations to trade for an affiliated member organization, as well 
as the necessary qualifications.
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    \8\ The Exchange requires a Series A-1 permit holder on the 
Exchange's trading floor to wear a badge which is provided by the 
Exchange and contains identifying information. The affiliated Series 
A-1 permit holder cannot simultaneously trade for both the primary 
and secondary member organization on the same day.
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    In particular, the Exchange requires certain information from the 
Series A-1 permit holder seeking affiliation in order to assure 
compliance with Rule 908 and other membership requirements

[[Page 71157]]

as well as other Rules. Specifically, the affiliated permit holder 
(permit holder with a primary and a secondary affiliation) would be 
required to disclose the individuals at each member organization 
(primary and secondary) responsible for supervising the Series A-1 
permit holder.\9\ This information is utilized by the Regulatory staff 
in its examination of persons trading on the Exchange for appropriate 
compliance with the Rules of the Exchange.
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    \9\ The Commission notes that the Exchange has proposed that 
both member organizations, not the affiliated permit holder, will be 
responsible for notifying the Exchange of the identity of the 
individuals supervising the affiliated permit holder. See proposed 
Rule 908(b)(i).
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    If a Series A-1 permit holder who is currently affiliated pursuant 
to Rule 793 is not affiliated with entities under common ownership, the 
organization that they qualify as a member would be required to obtain 
its own permit in order to maintain its membership status. A Series A-1 
permit holder who currently affiliates with an unrelated party (not 
under common ownership) to qualify a member organization for electronic 
access or access to the trading floor would not be permitted to 
continue to qualify that member organization under this proposal. 
Similarly, if a permit holder had more than two affiliations with a 
member organization they would only be permitted to maintain an 
affiliation with up to two member organizations. The amended text of 
Rule 908 requires that a Series A-1 permit holder can only affiliate 
with up to two member organizations that are under common ownership.
    In addition, the Exchange proposes to make conforming amendments to 
certain OFPAs \10\ and Regulations,\11\ specifically, OFPA F-9, Dual 
Affiliations, OFPA F-11, Splitting Order [sic], and Regulation 3, 
Identification Badges/Access Cards.
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    \10\ The Exchange's minor rule plan consists of options floor 
procedure advices (``OFPAs'' or ``Advices'') with preset fines, 
pursuant to Rule 19d-1(c) under the Act. 17 CFR 240.19d-1(c). Most 
OFPAs have corresponding options rules.
    \11\ Regulation 3 is part of the Exchange's Order and Decorum 
Regulations administered pursuant to Exchange Rule 60.
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    The Exchange proposes to amend OFPA F-9 by removing references to 
``dual'' so that the filing [sic] simply refers to affiliations. The 
Exchange is changing the requirement to report to the Office of the 
Secretary to the Membership Department to conform with the proposed 
amendment to Rule 908. The Exchange proposes to amend the reference to 
Rule 793, which is being deleted, and instead refer to Rule 908.
    The Exchange is also proposing to amend the language in OFPA F-9 to 
remove the requirements to explain compensation since the only 
affiliations that will be acceptable are those under common ownership. 
The Exchange is deleting the requirement to file an explanation of all 
agreed upon forms of compensation between affiliated firms because the 
Exchange believes that the information is not necessary since the firms 
would be required to be under common ownership pursuant to this 
proposal. The Exchange is also adding a sentence indicating that floor 
members must adhere to the requirements in renamed (a) and (b). The 
Exchange is proposing to reference Exchange Rule 1020 for the newly 
named F-9(ii)(a). The Exchange added this reference to Rule 1020 in 
paragraph F-9(ii)(a) in order to cross-reference the Rule concerning 
information barriers. This is not a substantive amendment; the purpose 
of this amendment is to be more specific with respect to the 
information in that paragraph. The Exchange simply renamed (b) for ease 
of reference.
    The Exchange is proposing to amend OFPA F-11 by similarly removing 
references to ``dual'' and replacing references to Rule 793 with Rule 
908. The Exchange is proposing to amend Regulation 3 by removing the 
reference to the word ``dual.''
    The Exchange also proposes to amend Exchange Rule 908(h) to add an 
``or'' to the text of the Exchange Rule 908(h) to make clear that a 
permit may be transferred either intra-firm or to an inactive nominee 
registered with the Exchange. This proposal is solely to clarify an 
existing practice.
    The Exchange proposes to amend Exchange Rule 900.2, Membership and 
Foreign Currency Options Applications, to address lapsed applications. 
Pursuant to Exchange Rule 900.2, applicants desiring membership in the 
Exchange are required to submit information in a form prescribed by the 
Membership Department.\12\ The Exchange expends resources in processing 
applications for members. The determination to admit a person for 
membership in the Exchange is contingent on the information provided in 
the application. After a 90 day calendar period has elapsed, the 
information provided by the applicant is stale and no longer a 
reasonable basis for the Exchange to make a determination on admitting 
a person for membership. The Membership Department expends a 
considerable amount of resources requesting updates from members and 
researching information to make a reasonable determination when an 
application is outdated.
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    \12\ The Membership Department posts the requisite forms on the 
Exchange's Web site at http://www.nasdaqomxtrader.com/Trader.aspx?id=membership_phlx. The Membership Department updates 
the forms from time to time and makes them available on this Web 
site.
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    This proposal seeks to amend Exchange Rule 900.2 \13\ to require 
persons seeking membership to the Exchange to provide all information 
and subsequent requests from the Membership Department for information 
within a 90 calendar day period or the application lapses. The Exchange 
may extend the timeframe for extraordinary purposes or in the instance 
that the Exchange makes a request relatively close to the 90-day 
timeframe. If an application lapses, the person would be required to 
submit a new application.\14\ The Exchange intends that all applicants 
be provided an equal opportunity to seek membership to the Exchange. 
Additionally, the Exchange would not refund the fee associated with 
submitting an application and the applicant would be required to pay a 
new fee to resubmit the application.\15\
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    \13\ The Commission notes that the Exchange proposes to renumber 
Rule 900.2(e) as 900.2(f) due to the new proposed Rule 900.2(e).
    \14\ The purpose of the new application would be to update all 
information to provide the Membership Department current information 
on which to basis [sic] a decision to accept the applicant for 
membership. The Exchange intends to file a proposal with the 
Commission to amend its Fee Schedule to reflect the lapsed 
application fee.
    \15\ The Exchange's Application Fee can be found on the Fee 
Schedule located on the Exchange's Web site at http://www.nasdaqomxtrader.com/content/marketregulation/membership/phlx/feesched.pdf.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \16\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \17\ 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 continuing to allow a Series A-1 permit holder to 
affiliate a permit in certain circumstances.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    Exchange Rule 793 was initially proposed \18\ prior to 
demutualization when the Exchange had a seat market and at that time it 
was more costly to obtain the right to trade on the

[[Page 71158]]

Exchange.\19\ Since demutualization, a Series A-1 permit has expanded a 
member's ability to gain access to the Exchange at a significantly 
lower cost.\20\ Today, there are no restrictions on the number of 
permits the Exchange may issue and, assuming the qualifications are 
met, a member organization may hold any number of permits, which does 
not prevent access to the Exchange.
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    \18\ See Securities Exchange Act Release No. 21777 (January 9, 
1985) [sic], 50 FR 8030, February 21, 1985) [sic] (SR-Phlx-84-14).
    \19\ Prior to demutualization, the Exchange had a limited number 
of seats and the dual affiliation allowed for additional access. 
There is no fixed number of Series A-1 permits today.
    \20\ The Exchange also allows members on the Exchange's trading 
floor to appoint inactive nominees pursuant to By-Law Article XII, 
Section 12-10. The inactive nominee allows a Member to have 
additional flexibility in obtaining coverage on the trading floor.
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    The Exchange believes that this proposal simplifies the affiliation 
process and applies it equally to all members. The Exchange believes 
that allowing for affiliation where there is a common ownership and up 
to two affiliations is a simple, straightforward process for allowing 
access to the Exchange for the purpose of allowing floor traders to 
meet Exchange rules and for assistance with staffing issues.
    The Exchange believes that amending the language in Rule 908(h) 
will provide members with clarity as to permit transfers. Finally, 
requiring applicants to submit their information within a 90 calendar 
day period, absent a showing of good cause, provides the Membership 
Department with information that can be utilized to make reasonable 
decisions concerning membership at the Exchange.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the 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 e-mail to rule-comments@sec.gov. Please include 
File No. SR-Phlx-2010-148 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-Phlx-2010-148. 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 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 
a.m. and 3 p.m. Copies of such 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 No. SR-Phlx-2010-148 and should be 
submitted on or before December 13, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-29343 Filed 11-19-10; 8:45 am]
BILLING CODE 8011-01-P