81 FR 549 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 1060

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 3 (January 6, 2016)

[Federal Register Volume 81, Number 3 (Wednesday, January 6, 2016)]
[Notices]
[Pages 549-550]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-33220]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76800; File No. SR-Phlx-2015-114]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 1060

December 30, 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 December 21, 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 update Phlx Rule 1060, as described 
further below. The text of the proposed rule change is below; proposed 
deletions are in brackets.
* * * * *

Rule 1060. Floor Broker Defined

    An Options Floor Broker is an individual who is registered with the 
Exchange for the purpose, while on the Options Floor, of accepting and 
handling options orders [received from members and member 
organizations. An Options Floor Broker shall not accept an order from 
any other source unless he is the nominee of a member organization 
qualified to transact business with the public in which event he may 
accept orders from public customers of the organization].
* * * * *

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 the proposal is to update Phlx Rule 1060, Floor 
Broker Defined, which is incorrect in a number of ways. Other than the 
implementation of the Exchange's Options Floor Broker Management 
System,\3\ the rule has not been updated since its adoption in 1984.
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    \3\ Securities Exchange Act Release No. 69471 (April 29, 2013), 
78 FR 26096 (May 3, 2013) (SR-Phlx-2013-09).
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    Currently, the rule provides that Floor Brokers are registered as 
such for the purpose of accepting and handling options orders received 
from members and member organizations.\4\ In actuality, Floor Brokers 
have long been accepting orders from non-members/member organizations. 
Specifically, Floor Brokers accept orders from broker-dealers who are 
not Phlx members or member organizations; they have long done so.\5\ No 
additional rules apply as a result of accepting orders from non-member 
broker-dealers.
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    \4\ See Rules 1(n) and (o).
    \5\ CBOE Floor Brokers are similarly permitted to accept orders 
from non-member broker-dealers. See CBOE Rule 6.70.
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    In addition, Floor Brokers accept orders from non-broker-dealer 
customers (meaning, the public). In order to do so, Floor Brokers must 
be properly qualified to do business with the public.\6\ These 
qualification requirements apply to all members and member 
organizations that do business with the public, including Floor 
Brokers, and will continue to do so under the amended rule. In 
addition, in order to do business with the public, Floor Brokers must 
abide by the Phlx rules pertaining to handling of customer orders, 
including fidelity bond coverage,\7\ annual audits,\8\ approval of the 
opening of accounts,\9\ supervision of accounts \10\ and communications 
to customers.\11\
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    \6\ See e.g., Rules 613, 620 and 1024(a).
    \7\ See Rule 705.
    \8\ See Rule 712.
    \9\ See Rule 1024(b).
    \10\ See Rule 1025.
    \11\ See Rule 1049.
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    The Exchange does not believe it is necessary to list in Rule 1060 
from what type of market participant a Floor Broker may receive orders, 
because a Floor Broker can accept orders from any type of market 
participant. It would be superfluous to add such a list. The rules 
applicable to doing business with the public apply to Floor Brokers and 
their member organization regardless of whether such rules are 
specifically listed in Rule 1060.
    Rule 1060 also provides that an Options Floor Broker shall not 
accept an order from any other source unless the Floor Broker is the 
nominee of a member organization qualified to transact business with 
the public in which event the Floor Broker may accept orders from 
public customers of the organization. The Exchange believes that this 
provision is incorrect in a number of respects. The term ``nominee'' is 
no longer used, except with reference to inactive nominees, which is a 
separate status, unrelated to defining a Floor Broker.\12\ Prior to 
2004, the Exchange had a different ownership and membership structure, 
such that the term ``nominee'' was sometimes used. Specifically, a 
nominee of a member organization was, in essence, a member.
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    \12\ See Rules 1(l) and 925.
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    Furthermore, the Floor Broker, not just his member organization, 
must be qualified to accept orders from the public.\13\ In addition, a 
Floor Broker's ability to accept orders from the public is not limited 
to accepting orders from public customers of the Floor Broker's member 
organization. As explained above, a Floor Broker may accept orders from 
the public provided the Floor Broker is properly qualified to do so and 
abides by the rules pertaining to handling of such orders.\14\
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    \13\ See Rule 613.
    \14\ See supra notes 5-10.
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    Accordingly, the Exchange is deleting the last sentence of Rule 
1060.
    In sum, the updated rule will continue to state that an Options 
Floor

[[Page 550]]

Broker is an individual who is registered with the Exchange for the 
purpose, while on the Options Floor, of accepting and handling options 
orders. Overall, the Exchange notes that the current language in Rule 
1060 was adopted at a time when the options market structure and 
trading floor community were very different than today. Long ago, there 
were only a handful of options exchanges, all of which operated trading 
floors. With the advent of additional exchanges and electronic trading, 
membership in every options exchange was no longer critical or 
practical. Many large firms maintained a floor presence in the form of 
their own ``house'' Floor Brokers. This has changed dramatically, in 
that most Floor Brokers now work for member organizations that are 
solely in the floor brokerage business and not affiliated with large 
firms that operate trading desks or receive order flow. Because the 
dynamics have changed so much and the floor brokerage business has 
evolved accordingly, the Exchange believes that the limitations 
contained in Rule 1060 no longer make sense.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act \15\ in general, and furthers the objectives of section 
6(b)(5) of the Act \16\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest, by correctly identifying what functions a 
Floor Broker can perform in terms of order acceptance. In its current 
form, Rule 1060 can be read too narrowly, which would result in a Floor 
Broker not being permitted to accept orders other than from members and 
member organizations. Other Phlx members and member organizations are 
not limited with respect to the participants from whom orders can be 
accepted, and, thus, the proposal levels the playing field for options 
Floor Brokers. Persons submitting orders for execution by a Floor 
Broker on the Exchange would not expect that Exchange membership would 
be required to do so. Thus, the Exchange believes that updating the 
rule will help prevent confusion and help ensure that floor brokerage 
services are widely available to various types of market participants, 
which should, in turn, promote just and equitable principles of trade.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 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. With respect to inter-market 
competition, the Exchange does not believe that the proposed revisions 
will impose any burden on competition, because at least one other 
Exchange has a similar rule governing the types of orders a floor 
broker can submit.\17\ With respect to intra-market competition, the 
proposal applies to all Phlx Floor Brokers.
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    \17\ CBOE Rule 6.70.
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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 \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(a)(iii).
    \19\ 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-2015-114 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-2015-114. 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 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-2015-114, and should be 
submitted on or before January 27, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-33220 Filed 1-5-16; 8:45 am]
 BILLING CODE 8011-01-P