81 FR 35074 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rules 900.1, 910, and 921

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 105 (June 1, 2016)

[Federal Register Volume 81, Number 105 (Wednesday, June 1, 2016)]
[Notices]
[Pages 35074-35075]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-12778]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77916; File No. SR-Phlx-2016-38]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rules 
900.1, 910, and 921

May 25, 2016.
    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 May 12, 2016, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``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 the following Rules: 900.1, General 
Powers and Duties of Membership Department; 910, Qualifications [sic] 
as Member Organization; and 921, Qualifications [sic]; Designation of 
Executive Representative.
    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 proposes to modify certain Phlx membership rules in 
order to harmonize them with Nasdaq and BX rules and to modernize the 
Exchange's Rulebook. Specifically, Exchange proposes to amend Rule 
900.1 entitled, ``General Powers and Duties of Membership Department'' 
by eliminating sections (b) and (d) which are the provisions regarding 
partnerships as distinct membership classifications. The exchange also 
proposes to eliminate the provisions regarding partnerships from Rule 
910(j), Qualifications [sic] as Member Organization. The Exchange will 
reserve those sections of the rules in order to allow for future 
membership needs. Sections of each of these Rules were more relevant to 
the Phlx membership review process prior to demutualization in 2004 and 
specifically related to the review of partnerships and no longer 
reflect the information needed as part of the membership review. These 
provisions were retained following changes to the Exchange Bylaws in 
2009, yet no longer were relevant to the regulatory needs of the 
Exchange. The proposed changes related to ownership structures of 
partnerships that the Exchange no longer needs as discussed in greater 
detail below. An additional amendment relates to the organizational 
changes that occurred following demutualization such that 
responsibilities that formerly were handled by the Board of Directors 
are now a responsibility of the Membership Department. The final change 
to Rule 921 entitled, ``Qualification; Designation of Executive 
Representative'' is proposed to align Phlx rules with existing NASDAQ 
and BX rule 1150.
    The membership distinctions in Rule 900.1(b) and (d) and Rule 
910(j) were applicable when Phlx offered seats to its members, prior to 
demutualization, yet remained in the rules after this was concluded in 
2004. Before demutualization, Phlx seats conveyed ownership of the 
Exchange, in addition to access, which created a greater obligation on 
Phlx to gather information on the members' legal business structure. 
Specifically, Phlx was obligated to maintain a heighted vigilance on 
the structure, ownership, and change of control in a partnership in 
order to ensure the financial integrity of its ownership and members 
ability to honor their trades and obligations. Rule 900.1(b) and 
900.1(d) articulates obligations of partners and general partners as 
they relate to the Exchange that are no longer relevant as the 
partnership no longer conveys specific obligations that are distinct 
from any other member organization. Rule 910(j) relates to liabilities 
that were unique to the partnership, as a member, which are no longer 
applicable today.
    Today, permits are issued to Exchange members and member 
organizations. The Exchange no longer needs to differentiate among 
types of entities because the permit structure conveys no ownership to 
the member. These membership rules related to partnerships are no 
longer applicable today. The distinctions regarding the admission of a 
member or member organization as a partnership, as compared to another 
ownership structure, are no longer relevant.
    The Exchange also proposes to replace the references to the ``Board 
of Directors'' with the ``Membership Department'' as part of Rule 
910(h). The responsibilities of the Board of Directors have changed. 
Consequently, the Board of Directors is no longer actively involved in 
the membership process, which is now operated in the same way as 
Nasdaq's and BX's and the review of the qualifications of Member 
Organizations is handled by the Membership Department, as defined in 
Rule 1(p). This rule has become outdated and no longer reflects current 
business practices.
    The final change relates to Rule 921(b); Phlx seeks to harmonize 
921(b) with the existing Nasdaq and BX Rule 1150 by not requiring an 
executive representative to provide evidence of their acceptance of 
designation in writing. The membership form will continue to require 
the designation of the Executive Representative, but will no longer 
require the designated person to provide their signature. The 
elimination of the evidence of acceptance provision of 921(b) does not 
impose any burden on competition rather it aligns the requirements of 
PHLX with that of Nasdaq and BX.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b)

[[Page 35075]]

of the Act \3\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \4\ in particular, in that it is designed to protect 
investors and the public interest by streamlining various aspects of 
the membership process. The Exchange believes that the provisions 
identified in Rule 900.1, 910, and 921 are outdated and unnecessary. 
These rules regarding partnerships and changes to the partnership rules 
no longer serves the needs of the Exchange.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
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    As described above PHLX's former ownership required the Exchange to 
be vigilant of the ownership structure of its members in case of 
financial distress or bankruptcy as the seat structure was vital to the 
financial condition of the Exchange and the relationships among 
members. Before demutualization, members had an ownership interest in 
the Exchange. Today, permits convey no ownership and therefore such 
vigilance as to the ownership structure of members is no longer 
warranted.
    The removal of Rules 900.1(b) and (d), Rule 910(j) and part of 
921(b) will promote just and equitable principles of trade, and foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities by removing burdensome requirements so that 
members and member organizations may properly focus on other relevant 
requirements which benefit the marketplace.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. The Exchange's proposed amendments seek to delete certain 
unnecessary rules which today burden partnerships over corporations. 
The deletions of the Rules 900.1(b) and (d), Rule 910(j) will remove a 
current burden on competition which requires members and member 
organizations that are partnerships to disclose unnecessary information 
as compared to other corporate entities not structured as a 
partnership.

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 \5\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\6\
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    \5\ 15 U.S.C. 78s(b)(3)(a)(iii) [sic].
    \6\ 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-2016-38 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-2016-38. 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-2016-38 and should be 
submitted on or before June 22, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-12778 Filed 5-31-16; 8:45 am]
BILLING CODE 8011-01-P