80 FR 70036 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Business Continuity and Disaster Recovery Plans Testing Requirements

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 218 (November 12, 2015)

[Federal Register Volume 80, Number 218 (Thursday, November 12, 2015)]
[Notices]
[Pages 70036-70039]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-28698]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76370; File No. SR-Phlx-2015-90]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt 
Business Continuity and Disaster Recovery Plans Testing Requirements

November 5, 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 November 2, 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 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 adopt business continuity and disaster 
recovery plans (``BC/DR Plans'') testing requirements for certain 
Exchange Member Organizations \3\ and PSX Participants \4\ 
(``Participants'') in

[[Page 70037]]

connection with Regulation Systems Compliance and Integrity 
(``Regulation SCI'').\5\
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    \3\ The term ``Member Organization'' is defined as ``a 
corporation, partnership (general or limited), limited liability 
partnership, limited liability company, business trust or similar 
organization, transacting business as a broker or a dealer in 
securities and which has the status of a member organization by 
virtue of (i) admission to membership given to it by the Membership 
Department pursuant to the provisions of Rules 900.1 or 900.2 or the 
By-Laws or (ii) the transitional rules adopted by the Exchange 
pursuant to Section 6-4 of the By-Laws. References herein to officer 
or partner, when used in the context of a member organization, shall 
include any person holding a similar position in any organization 
other than a corporation or partnership that has the status of a 
member organization.'' See Exchange Rule 1(o).
    \4\ The term ``PSX Participant'' or ``Participant'' is defined 
as ``an entity that fulfills the obligations contained in Rule 3211 
regarding participation in the System, and includes: (1) `Equities 
ECNs,' which are member organizations that meet all of the 
requirements of Rule 3223, and that participate in the System with 
respect to one or more System Securities; (2) `PSX Market Makers' or 
`Market Makers', member organizations that are registered as PSX 
Market Makers for purposes of participation in the System on a fully 
automated basis with respect to one or more System securities; and 
(3) `Order Entry Firms,' which are member organizations that are 
registered for the purposes of entering orders in System Securities 
into the System. This term shall also include any Electronic 
Communications Network or Alternative Trading System (as such terms 
are defined in Regulation NMS) that fails to meet all the 
requirements of Rule 3223.'' See PSX Rule 3301(c).
    \5\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
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    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 Exchange is proposing to adopt new Rule 926 to implement the 
BC/DR Plans requirements of Rule 1004 of Regulation SCI. As adopted by 
the Commission, Regulation SCI applies to certain self-regulatory 
organizations (including the Exchange), alternative trading systems 
(``ATSs''), plan processors, and exempt clearing agencies 
(collectively, ``SCI entities''), and will require these SCI entities 
to comply with requirements with respect to the automated systems 
central to the performance of their regulated activities. Among the 
requirements of Regulation SCI is Rule 1001(a)(2)(v), which requires 
the Exchange and other SCI entities to maintain ``[b]usiness continuity 
and disaster recovery plans that include maintaining backup and 
recovery capabilities sufficiently resilient and geographically diverse 
and that are reasonably designed to achieve next business day 
resumption of trading and two-hour resumption of critical SCI systems 
following a wide-scale disruption.'' \6\ The Exchange has put extensive 
time and resources toward planning for system failures and already 
maintains robust BC/DR Plans consistent with the Rule. As set forth 
below, in connection with Regulation SCI, the Exchange is proposing to 
require certain Member Organizations and Participants to participate in 
testing of the operation of the Exchange's BC/DR Plans.
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    \6\ 17 CFR 242.1001(a)(2)(v).
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    With respect to an SCI entity's BC/DR Plans, including its backup 
systems, paragraph (a) of Rule 1004 of Regulation SCI requires each SCI 
entity to: ``[e]stablish standards for the designation of those members 
or participants that the SCI entity reasonably determines are, taken as 
a whole, the minimum necessary for the maintenance of fair and orderly 
markets in the event of the activation of such plans.'' \7\ Paragraph 
(b) of Rule 1004 of Regulation SCI further requires each SCI entity to 
``[d]esignate members or participants pursuant to the standards 
established in paragraph (a) of [Rule 1004] and require participation 
by such designated members or participants in scheduled functional and 
performance testing of the operation of such plans, in the manner and 
frequency specified by the SCI entity, provided that such frequency 
shall not be less than once every 12 months.'' \8\ In order to comply 
with Rule 1004 of Regulation SCI, the Exchange proposes to adopt new 
Rule 926, which incorporates the requirements of Rule 1004 of 
Regulation SCI as part of the Exchange's rules, and sets forth the 
notice, selection criteria and obligations of Member Organizations and 
Participants with respect to BC/DR Plans testing.
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    \7\ 17 CFR 242.1004(a).
    \8\ 17 CFR 242.1004(b).
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    The Exchange proposes to adopt Rule 926(a), which will set forth 
the Exchange's obligations with respect to the selection of Members 
Organizations and Participants for testing. Specifically, the rule will 
require the Exchange to ``[e]stablish standards for the designation of 
those Members Organizations and Participants that the Exchange 
reasonably determines are, taken as a whole, the minimum necessary for 
the maintenance of fair and orderly markets in the event of the 
activation of such plans.'' The proposed new rule further provides that 
``[s]uch standards may include volume-based and/or market share-based 
criteria, and may be adjusted from time to time by the Exchange.'' 
Lastly, the proposed new rule will require the Exchange to provide 
public notice of the standards that it adopts.
    The Exchange is proposing to adopt Rule 926(b), which will set 
forth the obligations of the Exchange and its Members Organizations and 
Participants with respect to testing. Specifically, the rule will 
require the Exchange to ``designate Members Organizations and PSX 
Participants pursuant to the standards established in paragraph (a) of 
this rule and require participation by such designated Members 
Organizations and PSX Participants in scheduled functional and 
performance testing of the operation of such plans, in the manner and 
frequency specified by the Exchange, provided that such frequency shall 
not be less than once every 12 months.'' Moreover, the rule will 
require the Exchange to provide at least six months prior notice to 
Members Organizations and Participants that are designated for 
mandatory testing. Lastly, the rule will provide notice that 
participation in testing is a condition of membership for Members 
Organizations and Participants that are designated for testing.
    The Exchange encourages all Member Organizations and Participants 
to connect to the Exchange's backup systems and to participate in 
testing of such systems; \9\ however, certain Member Organizations and 
Participants will be obligated to participate in BC/DR Plans testing. 
In adopting new Rule 926, the Exchange will require mandatory 
participation in BC/DR Plans testing by those Member Organizations and 
Participants that the Exchange reasonably determines are, taken as a 
whole, the minimum necessary for the maintenance of fair and orderly 
markets in the event of the activation of such plans on the Exchange 
and PSX, respectively. The Exchange believes that using overall 
participation on its

[[Page 70038]]

markets (by volume and/or market share) as a measure to select Member 
Organizations and Participants for mandatory participation in BC/DR 
Plans testing is a reasonable means by which it can determine which 
Member Organizations and Participants are necessary for the maintenance 
of fair and orderly markets in the event of the activation of such 
plans.\10\ For each BC/DR Plans test cycle, the Exchange will select 
the top ten Member Organizations on the Exchange and the top five 
Participants on PSX based on the Exchange's measure of overall 
participation on each of those markets. All notices concerning BC/DR 
Plans testing will be posted on the Exchange's Web site.
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    \9\ In this regard, the Exchange will allow any Member 
Organization or Participant to participate in the testing of the 
Exchange's BC/DR Plans, which is consistent with the Plan. See SCI 
Adopting Release, supra note 5 at 72350. The Exchange will provide 
instructions on how a Member Organization and Participant must 
inform the Exchange of its interest in participating in an upcoming 
BC/DR Plans test via the announcement of the test date. A Member 
Organization or Participant must provide the Exchange notice of its 
interest to participate at least a week prior to the test date and 
must have the appropriate connection for testing in place.
    \10\ The Exchange will provide notice of the specific selection 
criteria and measurement period in a notice to Member Organizations 
and Participants. The initial selection criteria and measurement 
period will be announced no later than November 3, 2015.
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    The Exchange is proposing to initially select Member Organizations 
and Participants with the highest levels of trading volume on the 
Exchange and PSX over four calendar months (``Measurement Period'') as 
mandatory testing Member Organizations and Participants, 
respectively.\11\ Specifically, the Measurement Period will be the four 
calendar months of trading immediately prior to the Exchange's 
announcement of the next BC/DR Plans test date. The Measurement Period 
will always begin at a point after the Exchange announces the criteria 
to be used in the next BC/DR Plans test. By way of example, if on 
October 6, 2017 the Exchange announced the BC/DR Plans test selection 
criteria and on March 2, 2018 the Exchange announced a BC/DR Plans test 
date of September 8, 2018, the Measurement Period used to select Member 
Organizations and Participants subject to mandatory testing would be 
November 2017 through February 2018. Members Organizations and 
Participants not obligated to participate that wish to participate in 
this test must inform the Exchange no later than September 1, 2018.\12\
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    \11\ The Exchange may change the total number of Member 
Organizations and Participants selected from time to time.
    \12\ See note 9.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\13\ in general, and further the objectives 
of Section 6(b)(5) of the Act,\14\ 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 regulating, clearing, 
settling, processing information with respect to, and 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; and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The proposal will ensure that the Member 
Organizations and Participants necessary to ensure the maintenance of 
fair and orderly markets are properly designated consistent with Rule 
1004 of Regulation SCI. Specifically, the proposal will adopt clear and 
objective criteria with respect to the designation of Member 
Organizations and Participants that are required to participate in the 
testing of the Exchange's BC/DR Plans, as well as appropriate 
notification regarding such designation. As set forth in the SCI 
Adopting Release, ``SROs have the authority, and legal responsibility, 
under Section 6 of the Exchange Act, to adopt and enforce rules 
(including rules to comply with Regulation SCI's requirements relating 
to BC/DR testing) applicable to their members or participants that are 
designed to, among other things, foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and 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.'' \15\ The Exchange believes 
that this proposal is consistent with such authority and legal 
responsibility.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ See SCI Adopting Release, supra note 5 at 72350.
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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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. To 
the contrary, the proposal is not a competitive proposal but rather is 
necessary for the Exchange's compliance with Regulation SCI.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6)(iii) thereunder.\17\ 
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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\18\ A proposed rule change filed under Rule 
19b-4(f)(6)(iii) \19\ normally does not become operative prior to 30 
days after the date of the filing. However, pursuant to Rule 19b-
4(f)(6)(iii),\20\ the Commission may designate a shorter time if such 
action is consistent with the protection of investors and the public 
interest.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 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.
    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest 
as it will allow the Exchange to incorporate changes required under 
Regulation SCI, such as establishing standards for designating BC/DR 
participants, prior to the November 3, 2015 compliance date. 
Accordingly, the Commission designates the proposed rule change to be 
operative upon filing.\21\
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    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the

[[Page 70039]]

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 [email protected]. Please include 
File Number SR-Phlx-2015-90 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-2015-90. 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-2015-90 and 
should be submitted on or before December 3, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-28698 Filed 11-10-15; 8:45 am]
 BILLING CODE 8011-01-P