80 FR 18667 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Section (a)(iv) of Rule 703, Financial Responsibility and Reporting

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 66 (April 7, 2015)

[Federal Register Volume 80, Number 66 (Tuesday, April 7, 2015)]
[Notices]
[Pages 18667-18669]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-07882]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74627; File No. SR-Phlx-2015-30]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Section (a)(iv) of Rule 703, Financial Responsibility and Reporting

April 1, 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 March 23, 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, II, and III, below, 
which Items have been substantially 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\ See 15 U.S.C. 78s(b)(1).
    \2\ See 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 section (a)(iv) of Rule 703, 
Financial Responsibility and Reporting, as described below.\3\
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    \3\ A Registered Options Trader or ROT is a regular member or a 
foreign currency options participant of the Exchange located on the 
trading floor who has received permission from the Exchange to trade 
in options for his own account. See Exchange Rule 1014(b)(i).
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    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.

* * * * *

Rule 703. Financial Responsibility and Reporting

(a) Financial Responsibility Standards.--Each member organization 
effecting securities transactions shall comply with the capital 
requirements set forth below:
(i) each member organization subject to SEC

[[Page 18668]]

rule 15c3-1 shall at all times comply with said rule and the 
notification provisions of SEC rule 17a-11;
(ii) each member organization exempt from SEC rule 15c3-1 shall, at 
the time of its admission to the Exchange, have a minimum of $25,000 
in net liquid assets;
(iii) each member organization or foreign currency options 
participant organization exempt from SEC Rule 15c3-1 and whose 
principal business is as a registered options trader on the 
Exchange, shall, subject to subparagraph (iv) below, at all times 
maintain a minimum of $25,000 in net liquid assets;
(iv) each member organization referred to in paragraph (iii) above 
shall at all times maintain positive net liquid assets and, in its 
clearing account(s), positive equity, provided that said 
organization has filed with the Exchange a letter of guarantee 
issued on its behalf by a clearing member organization of this 
Exchange which is also a clearing member of the Options Clearing 
Corporation. In said letter the clearing member organization 
guarantees the financial responsibilities of said organization for 
all transactions and balances carried and cleared in the clearing 
account(s). [Such guarantee shall remain in effect until the 
Exchange receives from the clearing member organization written 
notice of its intent to cancel its guarantee. Written notice of such 
cancellation received by the Exchange at least one-half hour before 
the normal opening of trading shall take effect on the day of 
receipt; written notice received less than one-half hour before the 
opening of trading shall take effect on the opening of the business 
day following Exchange receipt.] Such letter of guarantee filed with 
the Exchange shall remain in effect until a written notice of 
revocation has been filed with the Exchange by the clearing member 
organization. A revocation shall in no way relieve a clearing member 
organization of responsibility for transactions guaranteed prior to 
the effective date of such revocation.
(v)-(viii) No change.
(b)-(f) No change.
* * * Commentary No change.
* * * * *

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 II.A., II.B., and II.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 modernize the 
Exchange's rules regarding the termination of letters of guarantee 
provided by clearing member organizations which guarantee the financial 
responsibilities of non-clearing member organizations. The proposal 
would permit clearing member organizations to terminate letters of 
guarantee which guarantee the financial responsibilities of non-
clearing member organizations on an intraday basis. The amendment would 
conform this aspect of Rule 703 to the Letter of Guarantee termination 
provisions of the NASDAQ Options Market (``NOM'') and NASDAQ OMX BX, 
Inc. (``BX'') rules.\4\
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    \4\ Chapter VII, Section 8(c) of the BX Rules provides in 
relevant part that ``[a] Letter of Guarantee filed with BX 
Regulation shall remain in effect until a written notice of 
revocation has been filed with BX Regulation by the Guarantor 
Clearing Participant.'' Chapter VII, Section 8(c) of the NOM rules 
is nearly identical, stating that ``[a] Letter of Guarantee filed 
with Nasdaq Regulation shall remain in effect until a written notice 
of revocation has been filed with Nasdaq Regulation by the Guarantor 
Clearing Participant.'' The BX and NOM rules also state, like the 
Phlx proposal, that a revocation shall in no way relieve the issuer 
of responsibility for transactions guaranteed prior to the effective 
date of such revocation.
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    Currently, Rule 703(a)(iv) provides that a clearing member 
guarantee remains in effect until the Exchange receives from the 
clearing member organization written notice of its intent to cancel its 
guarantee. It further provides that written notice of such cancellation 
received by the Exchange at least one-half hour before the normal 
opening of trading shall take effect on the day of receipt, except that 
written notice received less than one-half hour before the opening of 
trading shall take effect only on the opening of the business day 
following Exchange receipt. Consequently, a guaranteeing clearing 
member organization concerned about its guaranteed member 
organization's credit is unable to terminate its guarantee on an 
intraday basis.
    The proposed amendment to Rule 703(a)(iv) would enable the 
guaranteeing clearing member organization to terminate the guarantee 
during the trading day, avoiding financial responsibility for trades 
that would otherwise have occurred during the rest of the day for which 
the guaranteeing member would, under the current rule, remain 
financially responsible. As stated above, the change would conform the 
Phlx rule to the NOM and BX rules which permit revocation of a Letter 
of Guarantee to take effect upon filing of a written notice of 
revocation, which permits termination to become effective without 
waiting until the next trading day. The Exchange will terminate the 
registered options trader's access to trading as soon as it processes 
the withdrawn guarantee. Clearing member organizations will therefore 
be able to react more quickly under the amended rule to any potential 
rapid deterioration in the guaranteed entity's condition.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \6\ 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 permitting clearing member organizations to revoke letters of 
guarantee effective upon filing written notice of revocation with the 
Exchange. The proposal should encourage additional clearing member 
organizations to consider issuing letters of guarantee, knowing they 
may revoke the guarantee more quickly upon an adverse change in the 
guaranteed entity's circumstances than is currently permitted under 
Rule 703(a)(iv).
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    \5\ See 15 U.S.C. 78f(b).
    \6\ See 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 because the proposed change 
would apply to all issuers of clearing member guarantees equally and 
because it would also apply equally to all guaranteed entities whose 
guarantees are revoked under Rule 703(a)(iv).

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

[[Page 18669]]

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)(ii) of the Act \7\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\8\
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    \7\ See 15 U.S.C. 78s(b)(3)(a)(ii).
    \8\ See 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: (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. 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 [email protected]. Please include 
File Number SR-Phlx-2015-30 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-2015-30. 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-2015-30 and 
should be submitted on or before April 28, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ See 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-07882 Filed 4-6-15; 8:45 am]
BILLING CODE CODE 8011-01-P