Document ID: SEC-2019-1220-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2019-08-22T04:00Z

[Federal Register Volume 84, Number 163 (Thursday, August 22, 2019)]
[Notices]
[Pages 43849-43851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18077]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86695; File No. SR-Phlx-2019-28]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Exchange 
Rules 605 and 1049

August 16, 2019.
    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 August 5, 2019, Nasdaq PHLX LLC (``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 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 amend Exchange Rules 605 and 1049, titled 
``Advertisements, Market Letters, Research Reports and Sales 
Literature'' and ``Options Communications.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

[[Page 43850]]

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 rule change is to adopt advertising 
requirements within Rules 605 and 1049, titled, ``Advertisements, 
Market Letters, Research Reports and Sales Literature'' and ``Options 
Communications''. The changes are described in more detail below.
Definitions
    The Exchange proposes to amend Rules 605 and 1049 to incorporate by 
reference Financial Industry Regulatory Authority (``FINRA'') Rules 
2210 (``FINRA 2210'') and 2220 (``FINRA 2220''), respectively, as rules 
of Phlx. These proposed rule changes will apply the same advertising 
requirements applicable to members of Nasdaq Stock Market LLC 
(``Nasdaq'') and Nasdaq Options Market (``NOM'') to Phlx. Nasdaq 
incorporated FINRA 2210 by reference in 2006.\3\ Similarly, Section 22 
of Chapter XI of NOM Rules incorporated FINRA rules regarding 
communications with the public in 2008.\4\ The proposed rule changes 
will require members of Phlx to comply with FINRA 2210 and FINRA 2220 
when issuing any communication to the public. Specifically, Phlx Rule 
605 would require a Phlx member to comply with FINRA 2210 as if it were 
a rule of Phlx itself.\5\ Likewise, Phlx Rule 1049 would require a Phlx 
member to comply with FINRA 2220 as if it were a rule of Phlx 
itself.\6\
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    \3\ See Securities Exchange Act Release No. 53128, (January 13, 
2006), 71 FR 3550 (January 23, 2006) (In the Matter of the 
Application of the Nasdaq Stock Market LLC for Registration as a 
National Securities Exchange; Findings, Opinion, and Order of the 
Commission), which approved the incorporation by reference of NASD 
Rule 2210, among others, into the Nasdaq rulebook. See also 
Securities Exchange Act Release No. 85188 (February 25, 2019), 84 FR 
7138 (March 1, 2019) (SR-NASDAQ-2019-008), approving Nasdaq rule 
change updating references to NASD Rule 2210 to FINRA Rule 2210.
    \4\ See Securities Exchange Act Release No. 57478, (March 12, 
2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004 and SR-
NASDAQ-2007-080), which approved, among other changes, the 
incorporation by reference of certain FINRA rules as NOM rules.
    \5\ We note that Phlx members will not be required to comply 
with FINRA 2210(c). This is consistent with Nasdaq Rule 2210 which 
excludes FINRA 2210(c) from the public communications rules 
applicable to Nasdaq members.
    \6\ The Exchange notes that the proposed rule change would not 
subject Phlx members to compliance with FINRA 2210c. As most Phlx 
members are currently members of FINRA, those members have already 
been subject to FINRA 2210 in its entirety, including sub-part (c). 
Only those Phlx members that are not FINRA members, and as a result 
do not conduct securities transactions and business with the 
investing public, will be relieved of the obligation to comply with 
FINRA 2210c (the portion of the rule requiring submission of 
communications for review prior to publication). The proposed rule 
change will not relieve any existing FINRA member of the obligation 
to comply with rules regarding communications with the public.
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    The Exchange believes that requiring Phlx members to comply with 
FINRA 2210 and FINRA 2220 will provide consistency of marketing 
materials used by members of Nasdaq, NOM and Phlx as well as harness 
the knowledge and expertise of FINRA in their review of marketing 
materials.\7\ Furthermore, the proposed rule change will impose a 
heightened standard on Phlx members in comparison to existing Phlx Rule 
605 which simply calls for either the Phlx member, a general partner or 
holder of voting stock in the member to have endorsed their approval of 
the communication prior to publication or distribution.\8\
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    \7\ The Nasdaq OMX Group and FINRA entered into a Regulatory 
Services Agreement (RSA) dated January 1, 2013. Pursuant to this 
agreement, FINRA has performed member regulation for all Nasdaq 
exchanges. As a result of the proposed rule change, FINRA will now 
review all public marketing materials produced by Phlx members.
    \8\ Phlx Rule 605 also calls for retention of a copy of the 
communication for a period of three years. Rule 605 also imposes 
obligations on firms for whom Phlx serves as the designated 
examining authority. Continued application of these requirements 
would be superfluous once FINRA Rule 2210 becomes effective.
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    FINRA 2210(b)(1)(A) requires an appropriately qualified registered 
principal to approve each retail communication before the earlier of 
its use or filing with FINRA's Advertising Regulation Department. The 
requirements of FINRA 2210(b)(1)(A) may be satisfied by a Supervisory 
Analyst approved pursuant to FINRA Rule 1220(a)(14) \9\ with respect to 
(i) research reports on debt and equity securities as described in 
FINRA Rule 2241(a)(11) and FINRA Rule 2242(a)(3); (ii) retail 
communications as described in FINRA Rule 2241(a)(11)(A) and FINRA Rule 
2242(a)(3)(A); and (iii) other research communications, provided that 
the Supervisory Analyst has technical expertise in the particular 
product area. A Supervisory Analyst may not approve a retail 
communication that requires a separate registration unless the 
Supervisory Analyst also has such other registration.
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    \9\ FINRA Rule 1220(a)(14) lists the Principal Registration 
Category of Supervisory Analyst. Each principal as defined in 
paragraph (a)(1) of Rule 1220 may register with FINRA as a 
Supervisory Analyst if his or her activities are limited to 
approving the following: (i) The content of a member's research 
reports on equity securities; (ii) the content of a member's 
research reports on debt securities; (iii) the content of third-
party research reports; (iv) retail communications as described in 
Rule 2241(a)(11)(A); or (v) other research communications that do 
not meet the definition of ``research report'' under Rule 2241, 
provided that the Supervisory Analyst has technical expertise in the 
particular product area. The activities of a Supervisory Analyst 
engaged in equity research shall be supervised by a Research 
Principal registered pursuant to paragraph (a)(6) of Rule 1220.
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    The Exchange believes the application of FINRA 2210 to the 
Exchange's membership will benefit the broader marketplace by adopting 
FINRA's requirement that marketing materials be reviewed by 
appropriately qualified registered principals of a member. This will 
promote the public interest by helping to prevent inaccurate or 
misleading information going to investors. We note that Phlx Rule 1049 
is similar in substance to FINRA Rule 2220.\10\
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    \10\ While Phlx Rule 1049 and FINRA 2220 are substantively 
similar, there are differences in the rules regarding review of 
communications by members found to have departed from the standards 
of FINRA 2220. In the event FINRA finds a member to have departed 
from the standards of FINRA 2220, FINRA may require the member to 
file some or all options communications with the Advertising 
Regulation Department at least ten calendar days prior to first use.
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    The proposed rule change will not create a burdensome compliance 
obligation for Phlx members. Of the existing one hundred sixteen 
members of Phlx, ninety-one are also members of Nasdaq. In light of the 
overlap in membership of the two exchanges, the proposed rule changes 
will allow for easier compliance with rules of both exchanges since 
members of both exchanges will now have identical compliance 
obligations with respect to communications with the public.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\11\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\12\ in particular, in that it 
is designed to promote just and equitable

[[Page 43851]]

principles of trade and to protect investors and the public interest by 
bringing greater transparency and consistency to its rules. Requiring 
Phlx members to comply with FINRA 2210 and FINRA 2220 will add 
conformity to the advertising requirements for members of Nasdaq, NOM 
and Phlx exchanges. Conformity in marketing rules will aide member 
firms as they will have a uniform set of rules to adhere to when 
issuing communications to their customers across multiple markets. This 
will reduce the likelihood of confusion as to compliance obligations 
and promote compliance with Exchange rules and the delivery of clear, 
accurate information to the public. Both outcomes are in the public 
interest and further the objectives of Section 6(b)(5) of the Act. 
Compliance with FINRA 2210 and FINRA 2220 will also provide greater 
protection to the public as FINRA has significant experience in 
reviewing marketing and advertising material having done so for various 
Nasdaq exchanges and FINRA's own membership. FINRA review of marketing 
materials will help protect investors, further meeting the goals of 
Section 6(b)(5) of the Act.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule changes will not 
impose an undue burden on competition because the requirement to comply 
with FINRA Rules 2210 and FINRA 2220 will apply to all Phlx members 
equally.

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 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 \13\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 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.
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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 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-2019-28 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-2019-28. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SRPhlx-2019-28 and should be submitted on 
or before September 12, 2019.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18077 Filed 8-21-19; 8:45 am]
 BILLING CODE 8011-01-P