Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of the Proposed Rule Change, as Modified by Amendment No. 2 Thereto, Relating to Professional Orders, 17193-17196 [2010-7630]
Download as PDF
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Federal Register / Vol. 75, No. 64 / Monday, April 5, 2010 / Notices
aggregate annual burden of 100 hours
for all 20 clearing members, and that the
total additional cost of this requirement
will be approximately $2,000,000 each
year.74
In sum, the Commission estimates
that the total additional burden
associated with all of the conditions
contained in the exemptive order would
be approximately 160 hours,75 and that
the total additional cost associated with
compliance with the exemptive order
would be approximately $2 million.76
E. Collection of Information is
Mandatory
The collections of information
contained in the conditions to this
Order are mandatory for any entity
wishing to rely on the exemptions
granted by that order.
F. Confidentiality
Certain of the conditions of the this
Order that address collections of
information require CME clearing
members to make disclosures to their
customers, or to provide other
information to CME.
G. Request for Comment on Paperwork
Reduction Act Issues
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The Commission requests, pursuant to
44 U.S.C. 3506(c)(2)(B), comment on the
collections of information contained in
this Order to:
(i) Evaluate whether the collections of
information are necessary for the proper
performance of the functions of the
Commission, including whether the
information would have practical
utility;
74 100 hours = (5 hours for each clearing member
to assess its compliance with the requirements of
the order relating to segregation of customer assets
and attest that it is in compliance with those
requirements × 20 clearing members). $2 million =
$100,000 per clearing member × 20 clearing
members.
75 160 hours = (30 hours to draft the general
disclosure and determine how the disclosure
should be integrated into those other documents or
agreements + 30 hours to draft the 30.7-specific
disclosure and determine how the disclosure
should be integrated into those other documents or
agreements + 100 hours per year to assess its
compliance with the requirements of the order
relating to segregation of customer assets and attest
that it is in compliance with those requirements).
This total burden includes one-time burdens of 60
hours (= 30 hours to draft the general disclosure
and determine how the disclosure should be
integrated into those other documents or
agreements + 30 hours to draft the 30.7-specific
disclosure and determine how the disclosure
should be integrated into those other documents or
agreements) and annual burdens of 100 hours (100
hours per year to assess its compliance with the
requirements of the order relating to segregation of
customer assets and attest that it is in compliance
with those requirements).
76 The estimated cost of the additional audit
report. See footnote 74 and accompanying text.
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(ii) Evaluate the accuracy of the
Commission’s estimates of the burden of
the collections of information;
(iii) Determine whether there are ways
to enhance the quality, utility, and
clarity of the information to be
collected; and
(iv) Evaluate whether there are ways
to minimize the burden of the
collections of information on those
required to respond, including through
the use of automated collection
techniques or other forms of information
technology.
Persons who desire to submit
comments on the collection of
information requirements should direct
their comments to the OMB, Attention:
Desk Officer for the Securities and
Exchange Commission, Office of
Information and Regulatory Affairs,
Washington, DC 20503, and should also
send a copy of their comments to
Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090, and refer to File No. S7–
06–09. OMB is required to make a
decision concerning the collections of
information between 30 and 60 days
after publication of this document in the
Federal Register; therefore, comments
to OMB are best assured of having full
effect if OMB receives them within 30
days of this publication. The
Commission has submitted the
proposed collections of information to
OMB for approval. Requests for the
materials submitted to OMB by the
Commission with regard to these
collections of information should be in
writing, refer to File No. S7–06–09, and
be submitted to the Securities and
Exchange Commission, Records
Management Office, 100 F Street, NE.,
Washington, DC 20549.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010–7629 Filed 4–2–10; 8:45 am]
BILLING CODE 8011–01–P
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17193
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61802; File No. SR–Phlx–
2010–05]
Self-Regulatory Organizations;
NASDAQ OMX PHLX, Inc.; Notice of
Filing of Amendment No. 2 and Order
Granting Accelerated Approval of the
Proposed Rule Change, as Modified by
Amendment No. 2 Thereto, Relating to
Professional Orders
March 30, 2010.
I. Introduction
On January 12, 2010, the NASDAQ
OMX PHLX, Inc. (‘‘Phlx’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) a proposed
rule change pursuant to section 19(b)(1)
of the Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder 2 to
amend the Exchange’s priority rules to
treat certain non-broker-dealers in the
same manner as off-floor broker-dealers
with respect to priority. The proposed
rule change was published for comment
in the Federal Register on February 2,
2010.3 The Exchange filed Amendment
No. 1 to the proposed rule change on
March 26, 2010.4 The Exchange filed
Amendment No. 2 to the proposed rule
change on March 30, 2010.5 This order
provides notice of Amendment No. 2
and approves the proposal, as modified
by Amendment No. 2, on an accelerated
basis.
II. Description of Phlx’s Proposal
Phlx proposes to adopt a new term,
‘‘professional,’’ which would be defined
in paragraph (b)(14) of Phlx Rule 1000
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 61426
(January 26, 2010), 75 FR 5360 (February 2, 2010)
(‘‘Notice’’).
4 Amendment No. 2 replaces and supersedes
Amendment No. 1 in its entirety.
5 Amendment No. 2 adds Phlx Rule 1033(e),
which provides for public customer priority in
synthetic options orders in open outcry, and
Options Floor Procedure Advices (‘‘Advices’’) B–6,
B–11 and F–5 to the list of Phlx rules in which a
Professional (as defined below) would be treated in
the same manner as an off-floor broker-dealer. In
Amendment No. 2, Phlx also clarifies that
Professional orders may be considered customer
orders subject to facilitation for purposes of Phlx
Rule 1064.02, and corrects a technical error by
revising the reference to Advice C–3 to Advice
C–2. Phlx further states in this amendment that it
would issue a notice outlining the procedures for
the implementation of the proposal. Amendment
No. 2 also deletes a sentence in the Purpose section
of the proposal, in which the Exchange stated that
Professional orders would be subject to the same
transactions fees as customers today; changes ‘‘may’’
to ‘‘will’’ in the parenthetical regarding the
definition of ‘‘professional’’ for Phlx Rule 1064.02;
and changes ‘‘five days’’ to ‘‘five business days’’ in
footnote 8 in the Purpose Section and the Exhibit.
2 17
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as a person or entity that (i) is not a
broker or dealer in securities, and (ii)
places more than 390 orders in listed
options per day on average during a
calendar month for its own beneficial
account(s) (‘‘Professional’’). Under the
proposal, a Professional would be
treated in the same manner as an offfloor broker-dealer for purposes of
certain order execution rules of the
Exchange. Specifically, the orders of
Professionals generally would be treated
like off-floor broker-dealer orders for the
purposes of Phlx Rules 1014(g), which
governs, among other things, the
allocation of orders and, thus, priority
and parity among orders and
quotations; 6 1033(e), concerning
synthetic options orders; and 1064.02,
concerning facilitation orders and firm
participation guarantees; 7 in addition to
other, mostly conforming changes.8
Under the proposal, Professionals
would participate in Phlx’s allocation
process on equal terms with off-floor
broker-dealers—i.e., Professionals
would not receive priority over brokerdealers in the allocation of orders on the
Exchange. The Exchange states that the
proposal would not otherwise affect
non-broker-dealer individuals or entities
under Phlx rules. All customer orders,
including non-broker-dealer orders
included in the definition of
‘‘Professional’’ orders, would continue to
be treated equally for purposes of the
Exchange’s rules concerning routing of
orders and order protection.9 The
Exchange, which currently routes only
eligible customer orders, would route
eligible Professional orders.
In addition, the proposal would
require members to indicate whether
customer orders are Professional
orders.10 To comply with this
requirement, member organizations
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6 An
exception is made, however, with respect to
all-or-none orders, which would be treated like
customer orders.
7 Professional orders, however, would be
considered customer orders subject to facilitation.
8 These include changes to Rule 1080.08,
concerning complex orders, as well as to Advices
B–6, B–11 and F–5. The Exchange is also proposing
to amend Rule 1063(e) and the corresponding
Advice C–2, Options Floor Broker Management
System, to require Floor Brokers to record a
‘‘Professional’’ designator in the Floor Broker
Management System. See also infra, note 10.
Advice C–2 is part of the Exchange’s minor rule
plan. See Phlx Rule 970.
9 See Phlx Rules 1080(m), 1083, 1084, and 1086.
10 See Phlx Rule 1000(b)(14). The Exchange states
that it intends to utilize a special order origin code
for Professional orders. The Exchange also proposes
to disseminate the Professional designator over its
new Top of Phlx Options Plus Orders, which
includes disseminated Exchange top-of-market data
(including orders, quotes and trades) together with
all of the data currently available on the Specialized
Order Feed. See Securities Exchange Act Release
No. 60877 (October 26, 2009), 74 FR 56255 (October
30, 2009) (SR–Phlx–2009–92).
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would be required to review their
customers’ activity on at least a
quarterly basis to determine whether
orders that are not for the account of a
broker-dealer should be represented as
customer orders or Professional
orders.11 The Exchange states that it
intends to file a separate proposed rule
change to adopt fees for professional
orders.12
III. Commission Findings and Order
Granting Approval of the Proposed
Rule Change as Modified by
Amendment No. 2
After careful consideration of the
proposed rule change, the Commission
finds that the proposed rule change is
consistent with the Act. Specifically, the
Commission finds that the proposed
rule change is consistent with section
6(b) 13 of the Act and the rules
thereunder,14 and in particular with:
Section 6(b)(5) of the Act, which
requires that the rules of a national
securities exchange, among other things,
be designed to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism for a free and open market
and a national market system, and, in
general, to protect investors and the
public interest; and not be designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers;15
and
Section 6(b)(8) of the Act, which
requires the rules of an exchange not to
impose any burden on competition not
necessary or appropriate in furtherance
of the Act.16
Under the proposed rule change,
customers who place orders on the level
of frequency specified in proposed Phlx
Rule 1000(b)(14) would be deemed
11 Orders for any customer that had an average of
more than 390 orders per day during any month of
a calendar quarter would be required to be
represented as Professional orders for the next
calendar quarter. Member organizations would be
required to conduct a quarterly review and make
any appropriate changes to the way in which they
are representing orders within five business days
after the end of each calendar quarter. While
member organizations would only be required to
review their accounts on a quarterly basis, if during
a quarter the Exchange identifies a customer for
which orders are being represented as customer
orders but that has averaged more than 390 orders
per day during a month, the Exchange would notify
the member organization and the member
organization would be required to change the
manner in which it is representing the customer’s
orders within five business days. See Notice, supra
note 3 at 5361, n. 8.
12 See Amendment No. 2, supra note 4 at 4.
13 15 U.S.C. 78f(b).
14 In approving the proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
15 15 U.S.C. 78f(b)(5).
16 15 U.S.C. 78f(b)(8).
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Professionals and would no longer
receive the priority treatment currently
granted to all public customers. The
Commission has previously approved
similar proposals to give the orders of
certain customers, identified as
‘‘Professional Orders’’ 17 or
‘‘Professionals’’,18 no greater priority
than that given to broker-dealer
orders.19 Under the Professional
Customer Approval Orders, the orders
of public customers that are deemed
Professional orders are no longer
accorded the priority granted to the
orders of all other public customers.20
While Phlx Rule 1000(b)(14) differs
slightly from the rules adopted in the
Professional Customer Approval Orders,
the Commission believes that the
Exchange’s proposed rule change is
comparable to rules of the ISE and
CBOE, which the Commission found to
be consistent with the Act.
In the ISE Approval Order, the
Commission reviewed the background
and history of customer order priority
rules on national securities exchanges,
and analyzed the role played in the
shaping of these rules by various
considerations and principles. In this
regard, the Commission discussed the
requirement of section 6(b)(5) of the Act
that the rules of an exchange be
designed to protect investors and the
public interest; traditional notions of
customer priority in exchange trading;
the agency obligations of exchange
specialists; and the requirements of
section 11(a) of the Act.21 In approving
the ISE proposal, the Commission
articulated its view that priority for
public customer orders is not an
essential attribute of an exchange,22 and
noted that in the past it has approved
trading rules at options exchanges that
do not give priority to orders of public
customers that are priced no better than
the orders of other market
participants.23
In the ISE Approval Order, the
Commission concluded that section
6(b)(5) of the Act does not require an
exchange to treat the orders of public
17 See International Securities Exchange, LLC
(‘‘ISE’’) Rule 100(a)(37C).
18 See Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’) Rule 1.1 (ggg).
19 See Securities Exchange Act Release No. 59287
(January 23, 2009), 74 FR 5694 (January 30, 2009)
(‘‘ISE Approval Order’’); 61198 (December 17, 2009),
74 FR 68880 (December 29, 2009) (‘‘CBOE Approval
Order’’) (together, the ‘‘Professional Customer
Approval Orders’’).
20 See ISE Approval Order, supra note 19 and
CBOE Approval Order, supra note 19.
21 ISE Approval Order, supra note 16. For a brief
synopsis of the requirements of Section 11(a), see
infra, note 25.
22 See ISE Approval Order, supra note 19, at 5697.
23 See ISE Approval Order, supra note 19, at 5697,
n. 41–44.
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customers who place orders at the
frequency of more than 390 orders per
day on average identically to the orders
of public customers who do not meet
that threshold.24 For the same reason,
the Commission believes that Phlx’s
proposed rule change is consistent with
Section 6(b)(5) of the Act.
The Commission believes that its
view with respect to the ISE Approval
Order is equally applicable to the Phlx
proposal. In this regard, the Commission
does not believe that the Act requires
that the orders of a public customer or
any other market participant be granted
priority. Historically, in developing
their trading and business models,
exchanges have adopted rules, with
Commission approval, that grant
priority to certain participants over
others, in order to attract order flow or
to create more competitive markets.
However, the Act does not entitle any
participant to priority as a right. The
requirement of section 6(b)(8) of the Act
that the rules of an exchange not impose
an unnecessary or inappropriate burden
upon competition does not necessarily
mandate that a Professional (as defined
in the Phlx proposal) be granted priority
at a time that a broker-dealer is not
granted the same right. The Phlx
proposal simply restores the treatment
of persons who would be deemed
Professionals to a base line where no
special priority benefits are granted.25
Thus, the Commission believes that it is
consistent with the Act for Phlx to
amend its rules so that Professional
orders, like the orders of broker-dealers,
are not granted special priority.26
24 See ISE Approval Order, supra note 19, at 5697.
See also CBOE Approval Order, supra note 19.
25 In its proposal, the Exchange addressed
compliance with Section 11(a) of the Act and the
rules thereunder as applied to the Exchange’s
electronic trading platform, Phlx XL II. Section
11(a) prohibits a member of a national securities
exchange from effecting transactions on that
exchange for its own account, the account of an
associated person, or an account over which it or
its associated person exercises discretion unless an
exception applies. Section 11(a)(1) and the rules
thereunder contain a number of exceptions for
principal transactions by members and their
associated persons, including the exceptions in
subparagraph (G) of Section 11(a)(1) and in Rule
11a1–1(T), as well as Rule 11a2–2(T) under the Act.
The Exchange represents that, as applied to Phlx XL
II, it does not believe that the proposal would affect
the availability of the exceptions to Section 11(a) of
the Act, including the exceptions in subparagraph
(G) of Section 11(a) and in Rules 11a1–1(T) and
11a2–2(T), as are currently available. See Notice,
supra note 3.
26 The Commission notes that certain trading
practices that could be affected by the proposed
rule change may raise issues outside the scope of
its review of the proposal itself. Specifically, any
entity that acts as ‘‘dealer,’’ as defined in Section
3(a)(5) of the Act, 15 U.S.C. 78c(a)(5), is required
to register with the Commission under Section 15
of the Act, 15 U.S.C. 78o, and the rules and
regulations thereunder, or qualify for any exception
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Pursuant to section 19(b)(2) of the
Act,27 the Commission may not approve
any proposed rule change, or
amendment thereto, prior to the 30th
day after the date of publication of
notice of the filing thereof, unless the
Commission finds good cause for so
doing and publishes its reasons for so
finding. The Commission hereby finds
good cause for approving the proposed
rule change, as modified by Amendment
No. 2, before the 30th day after the date
of publication of notice of filing thereof
in the Federal Register.28 The
Commission notes that the proposal was
published for comment in the Federal
Register on February 2, 2010. The
Commission did not receive any
comments on the proposed rule change.
The Commission does not believe that
Amendment No. 2 significantly alters
the proposal. In the amendment, the
Exchange deleted an Exchange rule from
and added several Exchange rules and
Advices to the list of rules that would
be affected by the proposal; identified in
one instance where a specific provision
of a rule would be affected by the
proposal; and made a few technical or
clarifying changes to the rule text,
Purpose section, and/or Exhibit to the
proposed rule change. The Commission
believes that these revisions are
consistent with the proposal’s purpose
and raise no new significant issues. The
amendment also indicated that the Phlx
intends to file a separate proposed rule
change to adopt fees for Professional
orders. Finally, Phlx noted that it would
issue a notice outlining the procedures
for implementation of the proposal.
As noted above, the Commission
previously found that exchange rules
that distinguish between the orders of
customers who place orders at the
frequency of more than 390 orders per
day on average during a calendar month
for its own beneficial account(s) and the
orders of customers who do not meet
that threshold are consistent with the
Act.29 Accordingly, pursuant to section
or exemption from registration. Activity that may
cause a person to be deemed a dealer includes
‘‘‘quoting a market in or publishing quotes for
securities (other than quotes on one side of the
market on a quotations system generally available
to non-broker-dealers, such as a retail screen broker
for government securities).’’ See Definitions of
Terms in and Specific Exemptions for Banks,
Savings Associations, and Savings Banks Under
Sections 3(a)(4) and 3(a)(5) of the Securities
Exchange Act of 1934, Securities Exchange Act
Release No. 47364, 68 FR 8686, 8689, note 26
(February 24, 2003) (quoting OTC Derivatives
Dealers, Securities Exchange Act Release No. 40594
(October 23, 1998), 63 FR 59362, 59370, note 61
(November 3, 1998)).
27 15 U.S.C. 78s(b)(2).
28 See supra note 3.
29 See Professional Customer Approval Orders,
supra note 19.
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17195
19(b)(2) of the Act,30 the Commission
finds good cause to approve the
proposed rule change, as modified by
Amendment No. 2, on an accelerated
basis.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as modified by Amendment No.
2, 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–2010–05 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–2010–05. 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,31 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
a.m. and 3 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
30 15
U.S.C. 78s(b)(2).
text of the proposed rule change is
available on Exchange’s Web site at https://
nasdaqomxphlx.cchwallstreet.com/
NASDAQOMXPHLX/Filings/, on the Commission’s
Web site at https://www.sec.gov, at the principal
office of the Exchange, and at the Commission’s
Public Reference Room.
31 The
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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–
2010–05 and should be submitted on or
before April 26, 2010.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,32 that the
proposed rule change (SR–Phlx–2010–
05), as modified by Amendment No. 2,
be, and it hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–7630 Filed 4–2–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61800; File No. SR–DTC–
2010–03]
Self-Regulatory Organizations; The
Depository Trust Company; Order
Granting Approval of a Proposed Rule
Change To Eliminate the Option To
Receive a Physical Certificate From
DTC for Unsponsored American
Depositary Receipts That Are Part of
the Fast Automated Transfer Program
March 30, 2010.
I. Introduction
On January 19, 2010, The Depository
Trust Company (‘‘DTC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) proposed rule change
SR–DTC–2010–03 pursuant to section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’).1 Notice of the proposal
was published in the Federal Register
on February 22, 2010.2 The Commission
received no comment letters. For the
reasons discussed below, the
Commission is granting approval of the
proposed rule change.
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II. Description
An ADR is a security that trades in the
United States but represents a specified
number of shares in a foreign
corporation. ADRs are issued in the U.S.
by depositary banks. An ADR issuance
32 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 Securities Exchange Act Release No. 61507
(February 5, 2010), 75 FR 7641 (February 22, 2010).
33 17
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is ‘‘unsponsored’’ when there is no
formal agreement between the
depositary bank(s) issuing the ADR and
the foreign company whose underlying
shares are the basis for the ADR.
Because in unsponsored programs there
is no agreement between the issuer and
a specific depositary, more than one
depositary can be involved in the
issuance and cancellation of ADR
programs. Unsponsored ADRs trade in
the over-the-counter market.
Currently, in order to deposit an
unsponsored ADR at DTC, a depositary
bank that is also a DTC participant will
have its transfer agent create a certificate
for the new issue ADR, which is then
deposited at DTC by the depositary
bank. In an effort to eliminate some of
the risks and costs related to the
processing of securities certificates,3
DTC recently made unsponsored ADRs
eligible for DTC’s Fast Automated
Securities Transfer Program (‘‘FAST’’).4
DTC’s withdrawal-by-transfer (‘‘WT’’)
service allows a participant to instruct
DTC to have securities assets that are
held in the participant’s DTC account
reregistered in the name of the
participant, an investor, or a third party.
Upon receipt of a WT instruction from
a participant, DTC either sends a
certificate to the transfer agent for
reregistration in the name of the person
or entity identified in the WT
instruction or instructs the transfer
agent to debit DTC’s FAST position and
to issue securities in the name of the
person or entity identified in the WT
instruction.
As part of DTC’s response to an
industry effort to reduce the number of
securities certificates in the U.S. market
(sometimes referred to as
‘‘dematerialization’’),5 DTC initiated a
program of steadily increasing its fees
for WTs and other withdrawals to create
3 The costs and risks associated with physical
certificates include, among other things, those
associated with safekeeping, transfer, shipping and
insurance costs.
4 FAST was designed to eliminate some of the
risks and costs related to the creation, movement,
processing, and storage of securities certificates.
Under the FAST program, FAST transfer agents
hold FAST eligible securities in the name of Cede
& Co. in custody and for the benefit of DTC. As
additional securities are deposited or withdrawn
from DTC, the FAST transfer agents adjust the size
of DTC’s position as appropriate and electronically
confirm theses changes with DTC. For more
information relating to FAST, see Securities
Exchange Act Release Nos. 13342 (March 8, 1977)
[File No. SR–DTC–76–3]; 14997 (July 26, 1978) [File
No. SR–DTC–78–11]; 21401 (October 16, 1984) [File
No. SR–DTC–84–8]; 31941 (March 3, 1993) [SR–
DTC–92–15]; and 46956 (December 6, 2002) [File
No. SR–DTC–2002–15].
5 For more information on dematerialization, see
Securities Exchange Act Release No. 49405 (March
11, 2004), 69 FR 12922 (March 18, 2004), (File No.
S7–13–04).
PO 00000
Frm 00077
Fmt 4703
Sfmt 4703
strong disincentives for the use of
physical certificates. Consistent with
that program, DTC is now eliminating
participants’ ability to use the WT
service to have physical certificates
issued for unsponsored ADRs that are a
part of the FAST Program. DTC believes
that this modification of its WT service
reaffirms its goals of reducing the
number of securities certificates in the
U.S. markets. DTC participants will
continue to have the ability to request
a physical certificate directly from the
transfer agent by using the DWAC
process.6
III. Discussion
Section 17A(b)(3)(F) of the Act
requires, among other things, that the
rules of a clearing agency be designed to
promote the prompt and accurate
clearance and settlement of securities
transactions, assure the safeguarding of
securities and funds which are in the
custody or control of the clearing agency
or for which it is responsible, to foster
cooperation and coordination with
persons engaged in the clearance and
settlement of securities transactions, to
remove impediments to and perfect the
mechanism of a national system for the
prompt and accurate clearance and
settlement of securities transactions,
and, in general, to protect investors and
the public interest.7 The rule change
modifies a DTC service by discontinuing
the WT services for unsponsored ADRs
that are part of the FAST program,
which should in turn decrease the use
of securities certificates. As a result,
DTC’s rule change, as approved, should
make processing securities transactions
more safe and efficient by discouraging
the use of securities certificates, which
increase the risks and costs associated
with processing securities transactions.
Accordingly, for the reasons stated
above the Commission believes that the
rule change is consistent with DTC’s
obligation under Section 17A of the
Exchange Act, as amended, and the
rules and regulations thereunder.
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and in
particular with the requirements of
Section 17A of the Act and the rules and
regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
6 For more information about the DWAC service,
see Securities Exchange Act Release No. 30283
(January 23, 1992), 57 FR 3658 (January 30, 1992)
(SR–DTC–91–16) (order granting approval of the
DWAC service).
7 15 U.S.C. 78q–1(b)(3)(F).
E:\FR\FM\05APN1.SGM
05APN1
]]>Agencies
[Federal Register Volume 75, Number 64 (Monday, April 5, 2010)]
[Notices]
[Pages 17193-17196]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-7630]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61802; File No. SR-Phlx-2010-05]
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing of Amendment No. 2 and Order Granting Accelerated Approval of
the Proposed Rule Change, as Modified by Amendment No. 2 Thereto,
Relating to Professional Orders
March 30, 2010.
I. Introduction
On January 12, 2010, the NASDAQ OMX PHLX, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change pursuant to section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder \2\ to amend the Exchange's priority rules to treat certain
non-broker-dealers in the same manner as off-floor broker-dealers with
respect to priority. The proposed rule change was published for comment
in the Federal Register on February 2, 2010.\3\ The Exchange filed
Amendment No. 1 to the proposed rule change on March 26, 2010.\4\ The
Exchange filed Amendment No. 2 to the proposed rule change on March 30,
2010.\5\ This order provides notice of Amendment No. 2 and approves the
proposal, as modified by Amendment No. 2, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 61426 (January 26,
2010), 75 FR 5360 (February 2, 2010) (``Notice'').
\4\ Amendment No. 2 replaces and supersedes Amendment No. 1 in
its entirety.
\5\ Amendment No. 2 adds Phlx Rule 1033(e), which provides for
public customer priority in synthetic options orders in open outcry,
and Options Floor Procedure Advices (``Advices'') B-6, B-11 and F-5
to the list of Phlx rules in which a Professional (as defined below)
would be treated in the same manner as an off-floor broker-dealer.
In Amendment No. 2, Phlx also clarifies that Professional orders may
be considered customer orders subject to facilitation for purposes
of Phlx Rule 1064.02, and corrects a technical error by revising the
reference to Advice C-3 to Advice C-2. Phlx further states in this
amendment that it would issue a notice outlining the procedures for
the implementation of the proposal. Amendment No. 2 also deletes a
sentence in the Purpose section of the proposal, in which the
Exchange stated that Professional orders would be subject to the
same transactions fees as customers today; changes ``may'' to
``will'' in the parenthetical regarding the definition of
``professional'' for Phlx Rule 1064.02; and changes ``five days'' to
``five business days'' in footnote 8 in the Purpose Section and the
Exhibit.
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II. Description of Phlx's Proposal
Phlx proposes to adopt a new term, ``professional,'' which would be
defined in paragraph (b)(14) of Phlx Rule 1000
[[Page 17194]]
as a person or entity that (i) is not a broker or dealer in securities,
and (ii) places more than 390 orders in listed options per day on
average during a calendar month for its own beneficial account(s)
(``Professional''). Under the proposal, a Professional would be treated
in the same manner as an off-floor broker-dealer for purposes of
certain order execution rules of the Exchange. Specifically, the orders
of Professionals generally would be treated like off-floor broker-
dealer orders for the purposes of Phlx Rules 1014(g), which governs,
among other things, the allocation of orders and, thus, priority and
parity among orders and quotations; \6\ 1033(e), concerning synthetic
options orders; and 1064.02, concerning facilitation orders and firm
participation guarantees; \7\ in addition to other, mostly conforming
changes.\8\
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\6\ An exception is made, however, with respect to all-or-none
orders, which would be treated like customer orders.
\7\ Professional orders, however, would be considered customer
orders subject to facilitation.
\8\ These include changes to Rule 1080.08, concerning complex
orders, as well as to Advices B-6, B-11 and F-5. The Exchange is
also proposing to amend Rule 1063(e) and the corresponding Advice C-
2, Options Floor Broker Management System, to require Floor Brokers
to record a ``Professional'' designator in the Floor Broker
Management System. See also infra, note 10. Advice C-2 is part of
the Exchange's minor rule plan. See Phlx Rule 970.
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Under the proposal, Professionals would participate in Phlx's
allocation process on equal terms with off-floor broker-dealers--i.e.,
Professionals would not receive priority over broker-dealers in the
allocation of orders on the Exchange. The Exchange states that the
proposal would not otherwise affect non-broker-dealer individuals or
entities under Phlx rules. All customer orders, including non-broker-
dealer orders included in the definition of ``Professional'' orders,
would continue to be treated equally for purposes of the Exchange's
rules concerning routing of orders and order protection.\9\ The
Exchange, which currently routes only eligible customer orders, would
route eligible Professional orders.
---------------------------------------------------------------------------
\9\ See Phlx Rules 1080(m), 1083, 1084, and 1086.
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In addition, the proposal would require members to indicate whether
customer orders are Professional orders.\10\ To comply with this
requirement, member organizations would be required to review their
customers' activity on at least a quarterly basis to determine whether
orders that are not for the account of a broker-dealer should be
represented as customer orders or Professional orders.\11\ The Exchange
states that it intends to file a separate proposed rule change to adopt
fees for professional orders.\12\
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\10\ See Phlx Rule 1000(b)(14). The Exchange states that it
intends to utilize a special order origin code for Professional
orders. The Exchange also proposes to disseminate the Professional
designator over its new Top of Phlx Options Plus Orders, which
includes disseminated Exchange top-of-market data (including orders,
quotes and trades) together with all of the data currently available
on the Specialized Order Feed. See Securities Exchange Act Release
No. 60877 (October 26, 2009), 74 FR 56255 (October 30, 2009) (SR-
Phlx-2009-92).
\11\ Orders for any customer that had an average of more than
390 orders per day during any month of a calendar quarter would be
required to be represented as Professional orders for the next
calendar quarter. Member organizations would be required to conduct
a quarterly review and make any appropriate changes to the way in
which they are representing orders within five business days after
the end of each calendar quarter. While member organizations would
only be required to review their accounts on a quarterly basis, if
during a quarter the Exchange identifies a customer for which orders
are being represented as customer orders but that has averaged more
than 390 orders per day during a month, the Exchange would notify
the member organization and the member organization would be
required to change the manner in which it is representing the
customer's orders within five business days. See Notice, supra note
3 at 5361, n. 8.
\12\ See Amendment No. 2, supra note 4 at 4.
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III. Commission Findings and Order Granting Approval of the Proposed
Rule Change as Modified by Amendment No. 2
After careful consideration of the proposed rule change, the
Commission finds that the proposed rule change is consistent with the
Act. Specifically, the Commission finds that the proposed rule change
is consistent with section 6(b) \13\ of the Act and the rules
thereunder,\14\ and in particular with:
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ In approving the proposed rule change, the Commission notes
that it has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
Section 6(b)(5) of the Act, which requires that the rules of a
national securities exchange, among other things, be designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism for a free and open market and a national
market system, and, in general, to protect investors and the public
interest; and not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers;\15\ and
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Section 6(b)(8) of the Act, which requires the rules of an exchange
not to impose any burden on competition not necessary or appropriate in
furtherance of the Act.\16\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
Under the proposed rule change, customers who place orders on the
level of frequency specified in proposed Phlx Rule 1000(b)(14) would be
deemed Professionals and would no longer receive the priority treatment
currently granted to all public customers. The Commission has
previously approved similar proposals to give the orders of certain
customers, identified as ``Professional Orders'' \17\ or
``Professionals'',\18\ no greater priority than that given to broker-
dealer orders.\19\ Under the Professional Customer Approval Orders, the
orders of public customers that are deemed Professional orders are no
longer accorded the priority granted to the orders of all other public
customers.\20\ While Phlx Rule 1000(b)(14) differs slightly from the
rules adopted in the Professional Customer Approval Orders, the
Commission believes that the Exchange's proposed rule change is
comparable to rules of the ISE and CBOE, which the Commission found to
be consistent with the Act.
---------------------------------------------------------------------------
\17\ See International Securities Exchange, LLC (``ISE'') Rule
100(a)(37C).
\18\ See Chicago Board Options Exchange, Incorporated (``CBOE'')
Rule 1.1 (ggg).
\19\ See Securities Exchange Act Release No. 59287 (January 23,
2009), 74 FR 5694 (January 30, 2009) (``ISE Approval Order''); 61198
(December 17, 2009), 74 FR 68880 (December 29, 2009) (``CBOE
Approval Order'') (together, the ``Professional Customer Approval
Orders'').
\20\ See ISE Approval Order, supra note 19 and CBOE Approval
Order, supra note 19.
---------------------------------------------------------------------------
In the ISE Approval Order, the Commission reviewed the background
and history of customer order priority rules on national securities
exchanges, and analyzed the role played in the shaping of these rules
by various considerations and principles. In this regard, the
Commission discussed the requirement of section 6(b)(5) of the Act that
the rules of an exchange be designed to protect investors and the
public interest; traditional notions of customer priority in exchange
trading; the agency obligations of exchange specialists; and the
requirements of section 11(a) of the Act.\21\ In approving the ISE
proposal, the Commission articulated its view that priority for public
customer orders is not an essential attribute of an exchange,\22\ and
noted that in the past it has approved trading rules at options
exchanges that do not give priority to orders of public customers that
are priced no better than the orders of other market participants.\23\
---------------------------------------------------------------------------
\21\ ISE Approval Order, supra note 16. For a brief synopsis of
the requirements of Section 11(a), see infra, note 25.
\22\ See ISE Approval Order, supra note 19, at 5697.
\23\ See ISE Approval Order, supra note 19, at 5697, n. 41-44.
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In the ISE Approval Order, the Commission concluded that section
6(b)(5) of the Act does not require an exchange to treat the orders of
public
[[Page 17195]]
customers who place orders at the frequency of more than 390 orders per
day on average identically to the orders of public customers who do not
meet that threshold.\24\ For the same reason, the Commission believes
that Phlx's proposed rule change is consistent with Section 6(b)(5) of
the Act.
---------------------------------------------------------------------------
\24\ See ISE Approval Order, supra note 19, at 5697. See also
CBOE Approval Order, supra note 19.
---------------------------------------------------------------------------
The Commission believes that its view with respect to the ISE
Approval Order is equally applicable to the Phlx proposal. In this
regard, the Commission does not believe that the Act requires that the
orders of a public customer or any other market participant be granted
priority. Historically, in developing their trading and business
models, exchanges have adopted rules, with Commission approval, that
grant priority to certain participants over others, in order to attract
order flow or to create more competitive markets. However, the Act does
not entitle any participant to priority as a right. The requirement of
section 6(b)(8) of the Act that the rules of an exchange not impose an
unnecessary or inappropriate burden upon competition does not
necessarily mandate that a Professional (as defined in the Phlx
proposal) be granted priority at a time that a broker-dealer is not
granted the same right. The Phlx proposal simply restores the treatment
of persons who would be deemed Professionals to a base line where no
special priority benefits are granted.\25\ Thus, the Commission
believes that it is consistent with the Act for Phlx to amend its rules
so that Professional orders, like the orders of broker-dealers, are not
granted special priority.\26\
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\25\ In its proposal, the Exchange addressed compliance with
Section 11(a) of the Act and the rules thereunder as applied to the
Exchange's electronic trading platform, Phlx XL II. Section 11(a)
prohibits a member of a national securities exchange from effecting
transactions on that exchange for its own account, the account of an
associated person, or an account over which it or its associated
person exercises discretion unless an exception applies. Section
11(a)(1) and the rules thereunder contain a number of exceptions for
principal transactions by members and their associated persons,
including the exceptions in subparagraph (G) of Section 11(a)(1) and
in Rule 11a1-1(T), as well as Rule 11a2-2(T) under the Act. The
Exchange represents that, as applied to Phlx XL II, it does not
believe that the proposal would affect the availability of the
exceptions to Section 11(a) of the Act, including the exceptions in
subparagraph (G) of Section 11(a) and in Rules 11a1-1(T) and 11a2-
2(T), as are currently available. See Notice, supra note 3.
\26\ The Commission notes that certain trading practices that
could be affected by the proposed rule change may raise issues
outside the scope of its review of the proposal itself.
Specifically, any entity that acts as ``dealer,'' as defined in
Section 3(a)(5) of the Act, 15 U.S.C. 78c(a)(5), is required to
register with the Commission under Section 15 of the Act, 15 U.S.C.
78o, and the rules and regulations thereunder, or qualify for any
exception or exemption from registration. Activity that may cause a
person to be deemed a dealer includes ```quoting a market in or
publishing quotes for securities (other than quotes on one side of
the market on a quotations system generally available to non-broker-
dealers, such as a retail screen broker for government
securities).'' See Definitions of Terms in and Specific Exemptions
for Banks, Savings Associations, and Savings Banks Under Sections
3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934,
Securities Exchange Act Release No. 47364, 68 FR 8686, 8689, note 26
(February 24, 2003) (quoting OTC Derivatives Dealers, Securities
Exchange Act Release No. 40594 (October 23, 1998), 63 FR 59362,
59370, note 61 (November 3, 1998)).
---------------------------------------------------------------------------
Pursuant to section 19(b)(2) of the Act,\27\ the Commission may not
approve any proposed rule change, or amendment thereto, prior to the
30th day after the date of publication of notice of the filing thereof,
unless the Commission finds good cause for so doing and publishes its
reasons for so finding. The Commission hereby finds good cause for
approving the proposed rule change, as modified by Amendment No. 2,
before the 30th day after the date of publication of notice of filing
thereof in the Federal Register.\28\ The Commission notes that the
proposal was published for comment in the Federal Register on February
2, 2010. The Commission did not receive any comments on the proposed
rule change. The Commission does not believe that Amendment No. 2
significantly alters the proposal. In the amendment, the Exchange
deleted an Exchange rule from and added several Exchange rules and
Advices to the list of rules that would be affected by the proposal;
identified in one instance where a specific provision of a rule would
be affected by the proposal; and made a few technical or clarifying
changes to the rule text, Purpose section, and/or Exhibit to the
proposed rule change. The Commission believes that these revisions are
consistent with the proposal's purpose and raise no new significant
issues. The amendment also indicated that the Phlx intends to file a
separate proposed rule change to adopt fees for Professional orders.
Finally, Phlx noted that it would issue a notice outlining the
procedures for implementation of the proposal.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78s(b)(2).
\28\ See supra note 3.
---------------------------------------------------------------------------
As noted above, the Commission previously found that exchange rules
that distinguish between the orders of customers who place orders at
the frequency of more than 390 orders per day on average during a
calendar month for its own beneficial account(s) and the orders of
customers who do not meet that threshold are consistent with the
Act.\29\ Accordingly, pursuant to section 19(b)(2) of the Act,\30\ the
Commission finds good cause to approve the proposed rule change, as
modified by Amendment No. 2, on an accelerated basis.
---------------------------------------------------------------------------
\29\ See Professional Customer Approval Orders, supra note 19.
\30\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 2, 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-2010-05 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-2010-05. 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,\31\ 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 a.m. and 3 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
[[Page 17196]]
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-2010-05 and should be submitted on
or before April 26, 2010.
---------------------------------------------------------------------------
\31\ The text of the proposed rule change is available on
Exchange's Web site at https://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/Filings/, on the Commission's Web site at https://www.sec.gov, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\32\ that the proposed rule change (SR-Phlx-2010-05), as modified
by Amendment No. 2, be, and it hereby is, approved on an accelerated
basis.
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\32\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
---------------------------------------------------------------------------
\33\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7630 Filed 4-2-10; 8:45 am]
BILLING CODE 8011-01-P
