80 FR 44164 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rules 1092 and 124, and Modify the Phlx Pricing Schedule

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 142 (July 24, 2015)

[Federal Register Volume 80, Number 142 (Friday, July 24, 2015)]
[Notices]
[Pages 44164-44166]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-18134]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75488; File No. SR-Phlx-2015-65]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rules 1092 and 124, and Modify the Phlx Pricing Schedule

July 20, 2015.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 15, 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 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 (1) amend Rule 1092 to assess a $500 
Appeal Fee against a member or member organization which initiates and 
loses an appeal of an Options Exchange Official (``Official'') 
determination regarding an Obvious Error or Catastrophic Error, and to 
pass through other market center charges associated with obvious error 
determinations; (2) amend Rule 124, to clarify that that the $250 
appeal fee provided for in Rule 124(d) will not apply to appeals of 
Obvious Error or Catastrophic Error determinations, and (3) to modify 
the Phlx Pricing Schedule (``Pricing Schedule'') to reflect the new 
$500 Appeal Fee and pass-through charges from other market centers.
    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
    On May 8, 2015 the Exchange filed a proposed rule change (the 
``1092 Replacement Filing'') to delete Rule 1092, Obvious Errors and 
Catastrophic Errors, and replace it with new Rule 1092 entitled 
``Nullification and Adjustment of Options Transactions including 
Obvious Errors'' (``New Rule 1092''). New Rule 1092 also became 
operative on May 8, 2015.\3\
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    \3\ See SR-Phlx-2015-43. New Rule 1092 harmonizes rules related 
to the adjustment and nullification of erroneous options 
transactions with those of other exchanges. The Exchange believes 
that New Rule 1092, together with comparable rules filed by the 
other options exchanges, will provide transparency and finality with 
respect to the adjustment and nullification of erroneous options 
transactions, achieving consistent results for participants across 
U.S. options exchanges while maintaining a fair and orderly market, 
protecting investors and protecting the public interest.
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    The purpose of this proposed rule change is to adopt a $500 Appeal 
Fee that will apply in the event of unsuccessful appeals of Official 
determinations rendered pursuant to Section (l) of New Rule 1092 and to 
permit the Exchange to pass along charges assessed by another market 
center in connection with Obvious Error and Catastrophic Error 
determination requests presented to that market center by the Exchange 
on a member or member organization's behalf. To accommodate this 
proposed fee change, the Exchange proposes to amend Rule 124, Disputes-
Options, to add new language to section (l) of New Rule 1092, and to 
make conforming changes to the Exchange's Pricing Schedule, as 
described below.
    (I) $500 Appeal Fee/Pass Through Charges. The Exchange proposes to 
amend section (l) of the New Rule 1092, pursuant to which the Exchange 
will assess a $500 fee against members or member organizations who 
initiate a request for an appeal of an Official's Obvious Error or 
Catastrophic Error determination to the Exchange's Market Operations 
Review Committee (`MORC''), where the appeal is unsuccessful and the 
MORC votes to uphold the Official's determination. Further, the new 
rule permits the Exchange to pass any resulting charges through to the 
relevant member or member organization in instances where the Exchange, 
on behalf of the member or member organization, requests a 
determination by another market center that a transaction is an Obvious 
Error or Catastrophic Error.
    (II) Amendment to Rule 124. Currently, Rule 124(d) provides for 
assessment of a $250 fee to a member or member organization seeking 
review by the MORC of an Official ruling regarding Obvious Errors or 
Catastrophic Errors if the Official's ruling is sustained and not 
overturned or modified by the MORC.\4\ The Exchange proposes to amend 
Rule 124(a) to clarify that no provision of

[[Page 44165]]

Rule 124, including the Rule 124(d) $250 appeal fee, shall apply to 
Obvious Errors or Catastrophic Errors, both of which instead are to be 
subject to the new $500 Appeal Fee provision and procedures of Rule 
1092. The Exchange does not propose to move or make any further changes 
to any provision of Rule 124, which will continue to apply to disputes 
occurring on and relating to the trading floor (but not to Obvious 
Errors or Catastrophic Errors).
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    \4\ Exchange Rule 124(a) currently provides that ``[t]his Rule 
124(a) shall not apply to options transactions that are the result 
of an Obvious Error (as defined in Rule 1092).'' However, the 
Exchange currently applies Rule 124(d) to unsuccessful appeals of 
Official determinations of Obvious Errors to the MORC. The Exchange 
believes that fees associated with MORC appeals of Obvious Errors or 
Catastrophic Errors will be more logically set forth in the rulebook 
in Rule 1092(l) which describes the MORC appeals process for Obvious 
Errors and Catastrophic Errors.
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    (III) Amendment to Pricing Schedule.
    Currently, chapter VII, part D of the Exchange's Pricing Schedule 
reflects the $5,000 Catastrophic Error Fee provided for in prior 
Exchange Rule 1092(f)(ii), which was eliminated in favor of New Rule 
1092 which does not contain such a fee.\5\ The Pricing Schedule is 
being revised to reflect the elimination of the $5000 Catastrophic 
Error Fee and the addition instead, pursuant to the proposed new 
language in section (l) of New Rule 1092, of the $500 Appeal Fee and 
pass through charges described in (I) above.\6\
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    \5\ Pursuant to section (f) of prior Exchange Rule 1092 titled 
``Obvious Error and Catastrophic Errors,'' if an Exchange member 
believed that it had participated in a transaction that qualified as 
a Catastrophic Error, it could request a determination that a 
Catastrophic Error occurred. If an Options Exchange Official 
determined that a Catastrophic Error had occurred, the Options 
Exchange Official would adjust the execution price of the 
transaction according to Rule 1092. If it were determined that a 
Catastrophic Error had not occurred, the member requesting the 
determination would be assessed a charge of $5,000 pursuant to 
Exchange Rule 1092(f)(ii). See Securities Exchange Act Release No. 
58002 (June 23, 2008), 73 FR 36581 (June 27, 2008).
    \6\ The purpose of removing the $5,000 Catastrophic Error Fee, 
as part of replacing prior Rule 1092 with New Rule 1092 in the 1092 
Replacement Filing, was to remove a potential disincentive from 
requesting a review of what a market participant may believe to be a 
Catastrophic Error. Currently, the mere possibility--even if 
slight--that the Official could determine not to adjust or nullify 
the transaction in question and thus trigger the assessment of the 
$5,000 fee may unnecessarily deter members from requesting reviews 
which they believe to be justified. By eliminating the fee, the 
significant financial consequence of an adverse decision on a review 
will be lessened, and market participants should feel more 
comfortable with the fairness of the markets and the process adopted 
by the Exchange for requesting Officials to conduct reviews for 
determinations of Catastrophic Errors.
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2. Statutory Basis
    The Exchange believes that its proposal to amend Rule 124 and New 
Rule 1092 as well as the Pricing Schedule as proposed herein is 
consistent with section 6(b) of the Act \7\ in general, and furthers 
the objectives of section 6(b)(4) and (b)(5) of the Act \8\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among members and issuers and 
other persons using any facility or system which Phlx operates or 
controls, and is not designed to permit unfair discrimination between 
market participants to whom the Exchange's fees and rebates are 
applicable. The $500 Appeal Fee and the provision of pass through 
charges from other market centers are proposed herein are equitable, in 
that they apply equally to all member and member organizations lodging 
appeals to the MORC pursuant to New Rule 1092(l) or requesting Obvious 
Error or Catastrophic Error determinations from other market centers 
through the Exchange. The new fee and pass through charges are 
reasonable, in that they allow the Exchange to recoup administrative 
costs associated with such MORC appeals and with seeking Obvious Error 
or Catastrophic Error determinations of other market centers, while 
discouraging frivolous appeals or determination requests. The Exchange 
believes the new $500 Appeal Fee, which would reflect a $250 increase 
from the current appeal fee under Rule 124(d), is reasonable in that it 
will provide the Exchange additional resources with which to administer 
its regulatory functions, including the appeal of decisions made under 
New Rule 1092.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4), (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 does not believe 
the proposal will have any impact on competition. The $500 Appeal Fee 
and the provision of pass through charges from other market centers 
proposed herein will apply equally to all member and member 
organizations lodging appeals to the MORC pursuant to New Rule 1092(l) 
or requesting Obvious Error or Catastrophic Error determinations from 
other market centers through the Exchange.

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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act.\9\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2015-65 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-2015-65. 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.,

[[Page 44166]]

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 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-2015-65, and should be 
submitted on or before August 14, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Robert W. Errett,
Deputy Secretary.
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    \10\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-18134 Filed 7-23-15; 8:45 am]
 BILLING CODE 8011-01-P