Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Specialist and Registered Options Traders Allocation and Assignment Rules, 52279-52282 [E9-24356]

Download as PDF Federal Register / Vol. 74, No. 195 / Friday, October 9, 2009 / Notices programming and other costs associated with new product adoption. In addition, effective October 1, 2009, NSCC is adopting a reduction in fees that may be incurred by a member due to extraordinary events, such as mergers or mass reconciliations, that generate unusually high transaction volume for a limited duration. A member must arrange with NSCC in advance for the appropriate reduction in fees in such circumstances. With respect to transaction types for which the member has no history of prior usage, the credit will be 85% of the transaction fees chargeable for the transaction type. There will be an additional credit of 5% if the member continues use of the transaction type in its usual processing flows after the event. With respect to transaction types for which the member has a history of prior usage, the credit will be in an amount sufficient to produce an aggregate fee that is no more than 120% of the average amount charged to the member for such transactions in the prior three months. NSCC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act 5 and the rules and regulations thereunder applicable to NSCC because the proposed rule change updates NSCC’s fee schedule and provides for equitable allocation of fees among its members. (B) Self-Regulatory Organization’s Statement on Burden on Competition NSCC does not believe that the proposed rule change will have any impact or impose any burden on competition. mstockstill on DSKH9S0YB1PROD with NOTICES (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments relating to the proposed rule change have not yet been solicited or received. NSCC will notify the Commission of any written comments received by NSCC. 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 6 and Rule 19b– 4(f)(2) 7 thereunder because the proposed rule change is establishing or changing a due, fee, or other charge applicable only to a member. At any time within sixty days of the filing of 5 15 U.S.C. 78q–1. U.S.C. 78s(b)(3)(A)(ii). 7 17 CFR 240.19b–4(f)(2). 6 15 VerDate Nov<24>2008 16:05 Oct 08, 2009 Jkt 220001 such rule change, the Commission may summarily abrogate 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. 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 • Electronic comments may be submitted by using the Commission’s Internet comment form (https:// www.sec.gov/rules/sro.shtml), or • Send an e-mail to rule-comment@sec.gov. Please include File No. SR–NSCC–2009–08 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NSCC–2009–08. This file number should be included on the subject line if e-mail 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 (https://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 inspection and copying in the Commission’s Public Reference Section, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filings also will be available for inspection and copying at the principal office of NSCC and on NSCC’s Web site at https:// www.dtcc.com/legal/rule_filings/nscc/ 2009.php. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 52279 information that you wish to make available publicly. All submissions should refer to file number SR–NSCC– 2009–08 and should be submitted on or before October 30, 2009. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–24350 Filed 10–8–09; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60785; File No. SR–Phlx– 2009–86] Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Specialist and Registered Options Traders Allocation and Assignment Rules October 2, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 2 thereunder, notice is hereby given that on September 30, 2009, NASDAQ OMX PHLX, Inc. (‘‘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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Phlx Rules 501 (Specialist Appointment), 505 (Allocation, Reallocation and Transfer of Issues), 506 (Allocation Application), 507 (Application for Approval as an SQT or RSQT and Assignment of Options), and 513 (Voluntary Resignation of Options Privileges) to clarify and streamline the process for specialist allocations and Streaming Quote Trader (‘‘SQT’’) 3 and 8 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 An SQT is an Exchange Registered Options Trader (‘‘ROT’’) who has received permission from the Exchange to generate and submit option quotations electronically in eligible options to which such SQT is assigned. An SQT may only submit such quotations while such SQT is physically present on the floor of the Exchange. See 1 15 E:\FR\FM\09OCN1.SGM Continued 09OCN1 52280 Federal Register / Vol. 74, No. 195 / Friday, October 9, 2009 / Notices Remote Streaming Quote Trader (‘‘RSQT’’) 4 assignments, and delete unnecessary or obsolete language. The text of the proposed rule change is available on the Exchange’s Web site at https://www.nasdaqtrader.com/ micro.aspx?id=PHLXRulefilings, 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 mstockstill on DSKH9S0YB1PROD with NOTICES 1. Purpose The purpose of the proposed rule change is to amend Phlx Rules 501, 505, 506, 507, and 513 to clarify and streamline the process for specialist allocations and Streaming Quote Trader and Remote Streaming Quote Trader assignments, and delete unnecessary or obsolete language. After the merger of The NASDAQ OMX Group, Inc. (‘‘NASDAQ OMX’’) and the Philadelphia Stock Exchange, Inc. (now NASDAQ OMX PHLX, Inc.),5 the Commission in May 2009 approved a Phlx filing that, among other things, eliminated the Options Allocation, Evaluation and Securities Committee (‘‘Allocation Committee’’) and Rule 1014(b)(ii)(A). See also Securities Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) (SR–Phlx–2009–32) (approval order regarding enhancements to opening, linkage and routing, quoting, and order management processes in the Exchange’s electronic options order entry, trading, and execution system PHLX XL II.). 4 An RSQT is an ROT that is a member or member organization with no physical trading floor presence who has received permission from the Exchange to generate and submit option quotations electronically in eligible options to which such RSQT has been assigned. An RSQT may only submit such quotations electronically from off the floor of the Exchange. See Exchange Rule 1014(b)(ii)(B). 5 See Securities Exchange Act Release No. 58179 (July 17, 2008), 73 FR 42874 (July 23, 2008) (SR– Phlx–2008–31). See also Securities Exchange Act Release No. 58183 (July 17, 2008), 73 FR 42850 (July 23, 2008) (SR–NASDAQ–2008–035). VerDate Nov<24>2008 16:05 Oct 08, 2009 Jkt 220001 transferred all relevant duties from the Allocation Committee to the Exchange staff.6 As a result, the Exchange administers Rules 500 through 599 (the ‘‘Allocation and Assignment Rules’’). The Allocation and Assignment Rules generally describe the process for: application for becoming and appointment of specialists; allocation of classes of options to specialist units and individual specialists; application for becoming and approval of SQTs and RQTs and assignment of options to them; and specialist, SQT, and RSQT performance evaluations.7 Rule 501 deals with the process of applying for approval as a specialist or specialist unit on the Exchange. The Exchange proposes changes to clarify that the Exchange may prescribe the form and/or format for the initial application and subsequent application(s). This proposed change should enhance the uniformity and quality of the application process.8 The information required on such applications is already established in the rule and is not changed.9 The exchange also clarifies in the rule that 6 Securities Exchange Act Release No. 59924 (May 14, 2009), 74 FR 23759 (May 20, 2009) (SR–Phlx– 2009–23)(approval order). The proposal is similar in nature to previous proposals that, among other things, sought to more closely align the rules of Phlx and other exchanges within NASDAQ OMX, such as of The NASDAQ Stock Market LLC (‘‘Nasdaq’’). See, for example, Securities Exchange Act Release Nos. 59794 (April 20, 2009), 74 FR 18761 (April 24, 2009) (SR–Phlx–2009–17) (approval order regarding proposal to modify the process for nominating Phlx Governors); 60431 (August 4, 2009), 74 FR 40265 (August 11, 2009) (SR–Phlx–2009–59) (notice of filing relating to bylaws, Regulatory Oversight Committee, and referee program); and 59923 (May 14, 2009), 74 FR 23902 (May 21, 2009) (SR–NASDAQ–2009–046) (notice of filing and immediate effectiveness relating to criteria for securities that underlie options traded on NOM). 7 The Allocation and Assignment Rules also indicate, among other things, under what circumstances new allocations may not be made. See, for example, Supplementary Material .01 to Rule 506 (specialist may not apply for a new allocation for a period of six months after an option allocation was taken away from the specialist in a disciplinary proceeding or an involuntary reallocation proceeding). 8 The Exchange notes that specialist applications are submitted for various purposes that may include, for example, requests for approval as new (or returning) specialists or specialist units, initial approval to be a specialist in a particular option class, and approval to be a specialist in additional option classes. The proposed changes should allow the Exchange to have similar applications for use within the various types of applicant classes while affording the Exchange flexibility to modify the form and/or format of such applications and information requested therein. 9 The information specified in Rule 501 for applications to be a specialist unit includes the following: (1) The identity of the unit’s staff positions and who will occupy those positions; (2) the unit’s clearing arrangements; (3) the unit’s capital structure, including any lines of credit; and (4) the unit’s back up arrangements. PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 upon application by a member organization to become a specialist, the Exchange may, but is not required, to approve such organization as a specialist unit. Rule 505 deals with allocating, reallocating and transferring options classes on the Exchange. Currently, the rule states that a specialist unit that receives an allocation in an option must act as a specialist in it for at least one year. The Exchange is proposing a change indicating that, instead of an inflexible minimum one year time period, the Exchange may establish a minimum period that does not exceed one year (the ‘‘minimum specialist period’’). The length of the minimum specialist period, if one is chosen by the Exchange, will be indicated by the Exchange when it solicits applications for allocation of a security.10 The Exchange believes that this rule change would allow the Exchange to more closely tailor minimum specialist periods, to the benefit of specialists and specialist units as well as the Exchange.11 In a similar vein regarding minimum period, the Exchange proposes to codify in Rule 507 that upon initial assignment of an option to an SQT or RSQT, the SQT or RSQT may not withdraw from such assignment for ten or fewer business days after the effective date of assignment. The Exchange may, however, in exceptional circumstances approve withdrawal from an option assignment before such period of time.12 Where an SQT or RSQT seeks to withdraw from assignment in an option pursuant to Rule 507, the period of time that must pass between an SQT or RSQT notifying the Exchange of his or her desire to withdraw from assignment and the effective date of such withdrawal is reduced from three business days to one business day.13 Additionally, proposed Rule 507(b) states that, similarly to Rule 501, the Exchange may prescribe the form and/or format of applications for assignment in an option and the 10 See Proposed Commentary .01 to Rule 505. an example, in establishing a minimum period the Exchange may, among other things, take into account the desirability of the continuity of a market in a particular class of options. 12 As an example, such exceptional circumstances may exist where, within the week after assignment, the entity whose assigned security the SQT or RSQT is quoting is acquired by another, thereby impacting the risk tolerance of the SQT or RSQT and resulting in a request by the SQT or RSQT to cease the assignment. 13 The Exchange conforms Rule 506 to similarly state that if a specialist seeks to withdraw from allocation in a security, it should so notify the Exchange at least one business day prior to the desired effective date of such withdrawal. 11 As E:\FR\FM\09OCN1.SGM 09OCN1 Federal Register / Vol. 74, No. 195 / Friday, October 9, 2009 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES minimum information to be provided thereon.14 Rule 513 deals with voluntary resignations by specialist units from allocations of particular options. Currently, the rule states that barring any specialist performance or disciplinary issues, the option specialist unit that last traded an option must be given preference in any future allocation decision regarding the same option. The Exchange proposes to clarify that while a preference may be given by the Exchange, the preference will no longer be effective for a one year period in every instance. This should enable the Exchange to make better re-allocation determinations by taking into consideration not only past but also current and prospective factors. The Exchange also proposes to delete obsolete language regarding SQT and RSQT applicants requesting partial options assignments. Currently, Rule 507 in Commentary .01 allows an SQT or RSQT applicant to request option assignment by ‘‘root symbol,’’ 15 such that an SQT or RSQT could effectively request not to be assigned in certain options within an options class, such as, for example, those emanating from mergers and acquisitions and spinoffs.16 In light of the recent enhancements and configurations to the Exchange’s electronic quoting and trading system, which is now known as Phlx XL II,17 requesting partial assignments is no longer a feasible alternative for SQTs and RSQTs and is therefore being deleted.18 The Exchange believes that the changes proposed to the Allocation and Assignment Rules as a whole streamline the rules and make their implementation more uniform and predictable to the benefit of the 14 Moreover, the information noted in the proposed rule (e.g. appropriate Exchange account number, requested start date for each option applied for, and name of member organization) is similar to information currently requested of applicants. 15 A root symbol is the options trading mnemonic used for each option as applied by The Options Clearing Corporation (‘‘OCC’’) to series overlying the same security (depending, without limitation, on the strike price of the series, the expiration of the series, the price of the underlying security, and/ or mergers and acquisitions relating to the underlying security). See Commentary .01 to Rule 507. 16 The trend in allocations is, on the other hand, toward inclusivity of options emanating from mergers and acquisitions and spin-offs. See Securities Exchange Act Release No. 60455 (August 6, 2009), 74 FR 40857(SR–Phlx–2009–62) (notice of filing and immediate effectiveness) (providing for automatic allocation of related options). 17 See Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) (SR–Phlx–2009– 32) (approval order regarding XL II). 18 Assignment by ‘‘root symbol’’ is not compatible with XL II system requirements. VerDate Nov<24>2008 16:05 Oct 08, 2009 Jkt 220001 Exchange and market participants such as specialists, specialist units, SQTs and RSQTs on the Exchange. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 19 in general, and furthers the objectives of Section 6(b)(5) of the Act 20 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 clarifying and streamlining the process for specialist allocations and SQT and RSQT assignments. The Exchange believes that its rule change proposal does not engender unfair discrimination among specialists, specialist units, SQTs and RSQTs in that it clarifies and streamlines (as well as codifies) allocation and assignment procedures that are equally applicable to all members and member organizations at the Exchange. 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. 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 after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to 19(b)(3)(A) of the Act 21 and Rule 19b–4(f)(6) 22 thereunder. At any time within 60 days of the filing of the proposed rule change, the 19 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 21 15 U.S.C. 78s(b)(3)(A). 22 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. Phlx has satisfied this requirement. 20 15 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 52281 Commission may summarily abrogate 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. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Phlx–2009–86 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–Phlx–2009–86. This file number should be included on the subject line if e-mail 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 (https://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 inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 am and 3 pm. 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–2009–86 and should E:\FR\FM\09OCN1.SGM 09OCN1 52282 Federal Register / Vol. 74, No. 195 / Friday, October 9, 2009 / Notices be submitted on or before October 30, 2009. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–24356 Filed 10–8–09; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60771; File No. SR–Phlx– 2009–85] Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Discontinuation of the Specialist Fee Credit Pilot Program October 2, 2009. 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 September 24, 2009, NASDAQ OMX PHLX, Inc. (‘‘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. mstockstill on DSKH9S0YB1PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to discontinue its current pilot program relating to specialist fee credits for linkage orders. While changes to the Exchange’s fee schedule pursuant to this proposal are effective upon filing, the Exchange has designated this proposal to be effective on September 28, 2009. The text of the proposed rule change is available on the Exchange’s Web site at https:// nasdaqomxphlx.cchwallstreet.com/ NASDAQOMXPHLX/Filings/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. 23 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Nov<24>2008 16:05 Oct 08, 2009 Jkt 220001 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 proposed rule change is to discontinue the current pilot program related to a specialist fee credit for linkage is because the pilot is no longer necessary. On June 17, 2008, the Exchange filed an executed copy of the Options Order Protection and Locked/Crossed Market Plan (‘‘Plan’’), joining all other approved options markets in adopting the Plan.3 The Plan requires each options exchange to adopt rules implementing various requirements specified in the Plan.4 The Plan replaces the Plan for the Purpose of Creating and Operating an Intermarket Option Linkage (‘‘Linkage Plan’’).5 That Plan requires its participant exchanges to operate a stand-alone system or ‘‘Linkage’’ for sending order-flow between exchanges to limit trade-throughs.6 The Options Clearing Corporation (‘‘OCC’’) operates the Linkage system (the ‘‘System’’).7 The Exchange adopted various new rules in connection with the Plan to avoid tradethroughs and locked markets, among other things.8 The Exchange currently offers private routing as opposed to utilizing the Linkage Plan for routing. In light of this change, the Exchange 3 See Securities Exchange Act Release Nos. 60405 (July 20, 2009) (National Market System Plan Relating to Options Order Protection and Locked/ Crossed Markets). 4 See Securities Exchange Act Release No. 60363 (July 22, 2009), 74 FR 37270 (July 28, 2009) (SR– Phlx–2009–61). Linkage was governed by the Options Linkage Authority under the conditions set forth under the Plan for the Purpose of Creating and Operating an Intermarket Option Linkage approved by the Commission. The registered U.S. options markets are linked together on a real-time basis through a network capable of transporting orders and messages to and from each market. 5 See footnote 4. 6 See footnote 4. 7 See footnote 4. 8 See footnote 4. PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 proposes to terminate the specialist option transaction charge credit pilot program for trades executed via Intermarket Options Linkage (‘‘Linkage’’) as the credit will no longer be necessary since the specialists will no longer utilize Linkage to route trades. The current pilot, which is set to expire on July 31, 2010,9 relates to: (1) An option transaction charge credit of $0.21 per contract for Exchange specialist units 10 that incur options transaction charges when a customer order is delivered electronically via Phlx XL 11 or via the Exchange’s Options Floor Broker Management Systems (‘‘FBMS’’) 12 and then is executed via the Linkage as a Principal Acting as Agent Order (‘‘P/A Order’’) 13; and (2) the Floor Broker Linkage P/A fee and Options Specialist Unit Credit, which charges floor brokers an amount equal to the transaction fee(s) assessed on options specialist units by another exchange in connection with customer orders that are delivered to the limit book via FBMS and executed via Linkage as P/A Orders. The Exchange provides to options specialists units a credit in an amount equal to the transaction fee(s) assessed on them by another exchange in connection with executing customer orders that are delivered to the limit order book via FBMS and executed via Linkage as P/A Orders. The current pilot program has been in effect for several years.14 The pilot program which relates to transaction fees applicable to the execution of P/A Orders and Principal 9 See Securities Exchange Act Release No. 60209 (July 1, 2009), 74 FR 33006 (July 9, 2009) (SR–Phlx– 2009–55). 10 The Exchange uses the terms ‘‘specialists’’ and ‘‘specialists units’’ interchangeably herein. 11 See Exchange Rule 1080. 12 FBMS is designed to enable Floor Brokers and/ or their employees to enter, route and report transactions stemming from options orders received on the Exchange. FBMS also is designed to establish an electronic audit trails for options orders represented and executed by Floor Brokers on the Exchange, such that the audit trail provides an accurate, time-sequenced record of electronic and other orders, quotations and transactions on the Exchange, beginning with the receipt of an order by the Exchange, and further documenting the life of the order through the process of execution, partial execution, or cancellation of that order. See Exchange Rule 1080, Commentary .06. 13 A P/A Order is an order for the principal account of a specialist (or equivalent entity on another participant exchange that is authorized to represent Public Customer orders), reflecting the terms of a related unexecuted Public Customer order for which the specialist is acting as agent. See Exchange Rule 1088, a temporary linkage rule. 14 See Securities Exchange Act Release Nos. 58234 (July 25, 2008), 73 FR 45263 (August 4, 2008) (SR–Phlx–2008–55); 56101 (July 19, 2007), 72 FR 40920 (July 25, 2007) (SR–Phlx–2009–50 [sic]); 54257 (August 1, 2006), 71 FR 45089 (August 8, 2006) (SR–Phlx–2006–46); 53761 (May 5, 2006), 71 FR 27768 (May 12, 2006) (SR–Phlx–2006–20). E:\FR\FM\09OCN1.SGM 09OCN1

Agencies

[Federal Register Volume 74, Number 195 (Friday, October 9, 2009)]
[Notices]
[Pages 52279-52282]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-24356]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60785; File No. SR-Phlx-2009-86]


Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Specialist and Registered Options Traders Allocation and Assignment 
Rules

October 2, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on September 30, 2009, NASDAQ OMX PHLX, Inc. (``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rules 501 (Specialist 
Appointment), 505 (Allocation, Reallocation and Transfer of Issues), 
506 (Allocation Application), 507 (Application for Approval as an SQT 
or RSQT and Assignment of Options), and 513 (Voluntary Resignation of 
Options Privileges) to clarify and streamline the process for 
specialist allocations and Streaming Quote Trader (``SQT'') \3\ and

[[Page 52280]]

Remote Streaming Quote Trader (``RSQT'') \4\ assignments, and delete 
unnecessary or obsolete language.
---------------------------------------------------------------------------

    \3\ An SQT is an Exchange Registered Options Trader (``ROT'') 
who has received permission from the Exchange to generate and submit 
option quotations electronically in eligible options to which such 
SQT is assigned. An SQT may only submit such quotations while such 
SQT is physically present on the floor of the Exchange. See Rule 
1014(b)(ii)(A). See also Securities Exchange Act Release No. 59995 
(May 28, 2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32) 
(approval order regarding enhancements to opening, linkage and 
routing, quoting, and order management processes in the Exchange's 
electronic options order entry, trading, and execution system PHLX 
XL II.).
    \4\ An RSQT is an ROT that is a member or member organization 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically in eligible options to which such RSQT has been 
assigned. An RSQT may only submit such quotations electronically 
from off the floor of the Exchange. See Exchange Rule 
1014(b)(ii)(B).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at https://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
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 purpose of the proposed rule change is to amend Phlx Rules 501, 
505, 506, 507, and 513 to clarify and streamline the process for 
specialist allocations and Streaming Quote Trader and Remote Streaming 
Quote Trader assignments, and delete unnecessary or obsolete language.
    After the merger of The NASDAQ OMX Group, Inc. (``NASDAQ OMX'') and 
the Philadelphia Stock Exchange, Inc. (now NASDAQ OMX PHLX, Inc.),\5\ 
the Commission in May 2009 approved a Phlx filing that, among other 
things, eliminated the Options Allocation, Evaluation and Securities 
Committee (``Allocation Committee'') and transferred all relevant 
duties from the Allocation Committee to the Exchange staff.\6\ As a 
result, the Exchange administers Rules 500 through 599 (the 
``Allocation and Assignment Rules'').
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    \5\ See Securities Exchange Act Release No. 58179 (July 17, 
2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31). See also 
Securities Exchange Act Release No. 58183 (July 17, 2008), 73 FR 
42850 (July 23, 2008) (SR-NASDAQ-2008-035).
    \6\ Securities Exchange Act Release No. 59924 (May 14, 2009), 74 
FR 23759 (May 20, 2009) (SR-Phlx-2009-23)(approval order). The 
proposal is similar in nature to previous proposals that, among 
other things, sought to more closely align the rules of Phlx and 
other exchanges within NASDAQ OMX, such as of The NASDAQ Stock 
Market LLC (``Nasdaq''). See, for example, Securities Exchange Act 
Release Nos. 59794 (April 20, 2009), 74 FR 18761 (April 24, 2009) 
(SR-Phlx-2009-17) (approval order regarding proposal to modify the 
process for nominating Phlx Governors); 60431 (August 4, 2009), 74 
FR 40265 (August 11, 2009) (SR-Phlx-2009-59) (notice of filing 
relating to by-laws, Regulatory Oversight Committee, and referee 
program); and 59923 (May 14, 2009), 74 FR 23902 (May 21, 2009) (SR-
NASDAQ-2009-046) (notice of filing and immediate effectiveness 
relating to criteria for securities that underlie options traded on 
NOM).
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    The Allocation and Assignment Rules generally describe the process 
for: application for becoming and appointment of specialists; 
allocation of classes of options to specialist units and individual 
specialists; application for becoming and approval of SQTs and RQTs and 
assignment of options to them; and specialist, SQT, and RSQT 
performance evaluations.\7\
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    \7\ The Allocation and Assignment Rules also indicate, among 
other things, under what circumstances new allocations may not be 
made. See, for example, Supplementary Material .01 to Rule 506 
(specialist may not apply for a new allocation for a period of six 
months after an option allocation was taken away from the specialist 
in a disciplinary proceeding or an involuntary reallocation 
proceeding).
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    Rule 501 deals with the process of applying for approval as a 
specialist or specialist unit on the Exchange. The Exchange proposes 
changes to clarify that the Exchange may prescribe the form and/or 
format for the initial application and subsequent application(s). This 
proposed change should enhance the uniformity and quality of the 
application process.\8\ The information required on such applications 
is already established in the rule and is not changed.\9\ The exchange 
also clarifies in the rule that upon application by a member 
organization to become a specialist, the Exchange may, but is not 
required, to approve such organization as a specialist unit.
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    \8\ The Exchange notes that specialist applications are 
submitted for various purposes that may include, for example, 
requests for approval as new (or returning) specialists or 
specialist units, initial approval to be a specialist in a 
particular option class, and approval to be a specialist in 
additional option classes. The proposed changes should allow the 
Exchange to have similar applications for use within the various 
types of applicant classes while affording the Exchange flexibility 
to modify the form and/or format of such applications and 
information requested therein.
    \9\ The information specified in Rule 501 for applications to be 
a specialist unit includes the following: (1) The identity of the 
unit's staff positions and who will occupy those positions; (2) the 
unit's clearing arrangements; (3) the unit's capital structure, 
including any lines of credit; and (4) the unit's back up 
arrangements.
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    Rule 505 deals with allocating, re-allocating and transferring 
options classes on the Exchange. Currently, the rule states that a 
specialist unit that receives an allocation in an option must act as a 
specialist in it for at least one year. The Exchange is proposing a 
change indicating that, instead of an inflexible minimum one year time 
period, the Exchange may establish a minimum period that does not 
exceed one year (the ``minimum specialist period''). The length of the 
minimum specialist period, if one is chosen by the Exchange, will be 
indicated by the Exchange when it solicits applications for allocation 
of a security.\10\ The Exchange believes that this rule change would 
allow the Exchange to more closely tailor minimum specialist periods, 
to the benefit of specialists and specialist units as well as the 
Exchange.\11\
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    \10\ See Proposed Commentary .01 to Rule 505.
    \11\ As an example, in establishing a minimum period the 
Exchange may, among other things, take into account the desirability 
of the continuity of a market in a particular class of options.
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    In a similar vein regarding minimum period, the Exchange proposes 
to codify in Rule 507 that upon initial assignment of an option to an 
SQT or RSQT, the SQT or RSQT may not withdraw from such assignment for 
ten or fewer business days after the effective date of assignment. The 
Exchange may, however, in exceptional circumstances approve withdrawal 
from an option assignment before such period of time.\12\ Where an SQT 
or RSQT seeks to withdraw from assignment in an option pursuant to Rule 
507, the period of time that must pass between an SQT or RSQT notifying 
the Exchange of his or her desire to withdraw from assignment and the 
effective date of such withdrawal is reduced from three business days 
to one business day.\13\ Additionally, proposed Rule 507(b) states 
that, similarly to Rule 501, the Exchange may prescribe the form and/or 
format of applications for assignment in an option and the

[[Page 52281]]

minimum information to be provided thereon.\14\
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    \12\ As an example, such exceptional circumstances may exist 
where, within the week after assignment, the entity whose assigned 
security the SQT or RSQT is quoting is acquired by another, thereby 
impacting the risk tolerance of the SQT or RSQT and resulting in a 
request by the SQT or RSQT to cease the assignment.
    \13\ The Exchange conforms Rule 506 to similarly state that if a 
specialist seeks to withdraw from allocation in a security, it 
should so notify the Exchange at least one business day prior to the 
desired effective date of such withdrawal.
    \14\ Moreover, the information noted in the proposed rule (e.g. 
appropriate Exchange account number, requested start date for each 
option applied for, and name of member organization) is similar to 
information currently requested of applicants.
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    Rule 513 deals with voluntary resignations by specialist units from 
allocations of particular options. Currently, the rule states that 
barring any specialist performance or disciplinary issues, the option 
specialist unit that last traded an option must be given preference in 
any future allocation decision regarding the same option. The Exchange 
proposes to clarify that while a preference may be given by the 
Exchange, the preference will no longer be effective for a one year 
period in every instance. This should enable the Exchange to make 
better re-allocation determinations by taking into consideration not 
only past but also current and prospective factors.
    The Exchange also proposes to delete obsolete language regarding 
SQT and RSQT applicants requesting partial options assignments. 
Currently, Rule 507 in Commentary .01 allows an SQT or RSQT applicant 
to request option assignment by ``root symbol,'' \15\ such that an SQT 
or RSQT could effectively request not to be assigned in certain options 
within an options class, such as, for example, those emanating from 
mergers and acquisitions and spin-offs.\16\ In light of the recent 
enhancements and configurations to the Exchange's electronic quoting 
and trading system, which is now known as Phlx XL II,\17\ requesting 
partial assignments is no longer a feasible alternative for SQTs and 
RSQTs and is therefore being deleted.\18\
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    \15\ A root symbol is the options trading mnemonic used for each 
option as applied by The Options Clearing Corporation (``OCC'') to 
series overlying the same security (depending, without limitation, 
on the strike price of the series, the expiration of the series, the 
price of the underlying security, and/or mergers and acquisitions 
relating to the underlying security). See Commentary .01 to Rule 
507.
    \16\ The trend in allocations is, on the other hand, toward 
inclusivity of options emanating from mergers and acquisitions and 
spin-offs. See Securities Exchange Act Release No. 60455 (August 6, 
2009), 74 FR 40857(SR-Phlx-2009-62) (notice of filing and immediate 
effectiveness) (providing for automatic allocation of related 
options).
    \17\ See Exchange Act Release No. 59995 (May 28, 2009), 74 FR 
26750 (June 3, 2009) (SR-Phlx-2009-32) (approval order regarding XL 
II).
    \18\ Assignment by ``root symbol'' is not compatible with XL II 
system requirements.
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    The Exchange believes that the changes proposed to the Allocation 
and Assignment Rules as a whole streamline the rules and make their 
implementation more uniform and predictable to the benefit of the 
Exchange and market participants such as specialists, specialist units, 
SQTs and RSQTs on the Exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \19\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \20\ 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 clarifying and streamlining the process for specialist 
allocations and SQT and RSQT assignments. The Exchange believes that 
its rule change proposal does not engender unfair discrimination among 
specialists, specialist units, SQTs and RSQTs in that it clarifies and 
streamlines (as well as codifies) allocation and assignment procedures 
that are equally applicable to all members and member organizations at 
the Exchange.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 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.

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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \21\ and Rule 19b-4(f)(6) \22\ 
thereunder.
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 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. 
Phlx has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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.

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2009-86 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2009-86. This file 
number should be included on the subject line if e-mail 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 (https://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 inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
am and 3 pm. 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-2009-86 and should

[[Page 52282]]

be submitted on or before October 30, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-24356 Filed 10-8-09; 8:45 am]
BILLING CODE 8011-01-P
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