Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval to a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to the Establishment of Remote Specialists, 4141-4144 [2011-1297]
Download as PDF
Federal Register / Vol. 76, No. 15 / Monday, January 24, 2011 / Notices
with applicable international
conventions and agreements and with
customary international law as reflected
in the Law of the Sea Convention. The
plans and their implementation will be
assessed and reviewed annually by the
NOC and modified as needed based on
the success or failure of the agreed upon
actions.
The NOC is committed to
transparency in developing strategic
action plans and implementing the
National Policy. As the NOC develops
and revises the plans, it will ensure
substantial opportunity for public
participation. The NOC will also
actively engage interested parties,
including, as appropriate, State, Tribal,
and local authorities, regional
governance structures, academic
institutions, nongovernmental
organizations, recreational interests, and
private enterprise.
Ted Wackler,
Deputy Chief of Staff, OSTP.
[FR Doc. 2011–1316 Filed 1–21–11; 8:45 am]
BILLING CODE P
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact:
The Office of the Secretary at (202)
551–5400.
Dated: January 20, 2011.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–1513 Filed 1–20–11; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63717; File No. SR–Phlx–
2010–145]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing of Amendment No. 1 and Order
Granting Accelerated Approval to a
Proposed Rule Change, as Modified by
Amendment No. 1 Thereto, Relating to
the Establishment of Remote
Specialists
January 14, 2011.
I. Introduction
SECURITIES AND EXCHANGE
COMMISSION
mstockstill on DSKH9S0YB1PROD with NOTICES
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Thursday, January 27, 2011 at 2 p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matters at the Closed
Meeting.
Commissioner Casey, as duty officer,
voted to consider the items listed for the
Closed Meeting in a closed session.
The subject matter of the Closed
Meeting scheduled for Thursday,
January 27, 2011 will be:
institution and settlement of injunctive
actions; institution and settlement of
administrative proceedings; and other
matters relating to enforcement proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
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On October 14, 2010, NASDAQ OMX
PHLX LLC (‘‘Phlx’’ or the ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and Rule
19b–4 thereunder,2 a proposed rule
change to allow certain Phlx exchange
members to act as option specialists that
are not physically present on the option
trading floor. The proposed rule change
was published for comment in the
Federal Register on November 2, 2010.3
On January 11, 2011, the Exchange filed
Amendment No. 1 to the proposed rule
change.4 The Commission received no
comments on the proposal. This order
provides notice of filing of Amendment
No. 1 and grants accelerated approval to
the proposed rule change, as modified
by Amendment No. 1.
II. Description of the Proposal
The Exchange proposes to amend
Phlx Option Rules 501, 506, 507, 1014,
and 1020 to provide for remote
specialists under limited circumstances
and amend its Option Floor Procedure
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 63192
(October 27, 2010), 75 FR 67427 (‘‘Notice’’).
4 On December 16, 2010, the Exchange extended
the period for Commission consideration of its
proposal to January 14, 2011. See 15 U.S.C.
78s(b)(2)(A)(ii)(II) (concerning the ability of the selfregulatory organization that filed a proposed rule
change to extend the time period for Commission
consideration of its proposal).
2 17
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4141
Advices 5 B–3 and E–1 to reflect the new
category of remote specialist.
Currently, Phlx has several types of
Registered Options Traders (‘‘ROTs’’) 6
that can register as market makers on
the Exchange, including specialists,
Streaming Quote Traders (‘‘SQTs’’),7 and
Remote Streaming Quote Traders
(‘‘RSQTs’’).8 Specialists are floor-based
Exchange members who are registered
as options specialists pursuant to Rule
1020(a). An SQT has a physical
presence on the options floor (though
they may be ‘‘in-crowd’’ or ‘‘out-ofcrowd’’) and is authorized to generate
and submit option quotations
electronically in options to which such
SQT is assigned, but may only do so
when he or she is physically present on
the floor of the Exchange. An RSQT, on
the other hand, has no physical trading
floor presence and instead is authorized
to generate and submit option
quotations electronically in options to
which such RSQT has been assigned.
The various market making
requirements applicable to each
category of market maker are set forth in
Rule 1014. Rules 500 through 599 (the
‘‘Allocation and Assignment Rules’’)
generally describe the process for
application and appointment of
specialists, SQTs and RSQTs, as well as
the allocation of classes of options to
them.9
Accordingly, while Phlx’s rules
provide for remote market-making ROTs
(i.e., RSQTs), they do not provide for
remote specialists. Rather, Phlx’s rules
currently require that each options class
and series listed on the Exchange have
a specialist physically present on the
5 Phlx’s Options Floor Procedure Advices
(‘‘OFPAs’’ or ‘‘Advices’’) are part of the Exchange’s
minor rule plan (‘‘MRP’’ or ‘‘Minor Rule Plan’’),
which consists of Advices with preset fines,
pursuant to Rule 19d–1(c) under the Act (17 CFR
240.19d–1(c)). See e.g., Securities Exchange Act
Release No. 50997 (January 7, 2005), 70 FR 2444
(January 13, 2005) (SR–Phlx–2003–40) (order
approving the Exchange’s Options Floor Broker
Management System). As this time, Phlx is not
proposing to change any of the fines that are
applicable under any of the Advices.
6 A ROT is a member who has received
permission from the Exchange to trade in options
for his own account. Phlx also has Directed SQTs
and Directed RSQTs, which receive Directed Orders
as defined in Rule 1080(l)(i)(A). Specialists may
likewise receive Directed Orders. Further, Phlx
rules also provide for non-streaming ROTs (‘‘nonSQT ROT’’), which can make markets in certain
options on an issue-by-issue basis. See Rule
1014(b)(ii)(C).
7 See Rule 1014(b)(ii)(A).
8 See Rule 1014(b)(ii)(B).
9 The Allocation and Assignment Rules also
indicate under what circumstances new allocations
may not be made. See, e.g., Supplementary Material
.01 to Rule 506.
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Federal Register / Vol. 76, No. 15 / Monday, January 24, 2011 / Notices
options floor (‘‘floor-based specialist’’).10
The Exchange notes that, historically, a
floor-based specialist was required for
each options class and series, consistent
with the traditional model of an open
outcry auction market featuring trading
crowds at physical trading posts on the
floor and Floor Brokers 11 that represent
orders on the floor on behalf of others.12
In addition to its floor-based trading
environment, Phlx also operates an
electronic system to execute option
orders,13 resulting in a hybrid-model
options market that combines a
traditional open outcry auction market
trading floor with electronic trading (the
‘‘current Phlx market’’).14
The Exchange notes that it has found
it to be difficult at times, if not
impossible, to allocate certain option
products. For example, the Exchange
has found that specialists may, at times,
relinquish their options privileges,
when, for example, the underlying
securities are involved in a takeover, a
merger/acquisition situation, or some
type of rights offering.15 Without a floorbased specialist that is willing to retain
(or accept) allocation of an option, the
Exchange may not list such options
pursuant to its current rules. This, in
turn, may negatively impact market
participants and investors to the extent
that the sudden delisting of a Phlx
option limits their choice of execution
venues. As discussed below, Phlx’s
proposed rule change is intended to
address the difficulty that Phlx has
faced in allocating options where no
floor-based specialists are willing to
accept the allocation. Specifically, Phlx
proposes to allow for remote specialists,
as it currently does for RSQTs, in order
to expand the universe of market
participants that could assume the role
of specialist and help ensure the listing,
or continued listing, of options on Phlx.
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III. Discussion
After careful review, the Commission
finds that the proposed rule change, as
modified by Amendment No. 1, is
consistent with the requirements of the
Act and the rules and regulations
10 The Exchange states in the Notice that at least
one exchange that uses a specialist system has
allowed certain option series to trade without a
designated lead market maker (specialist).
11 See Rule 1060.
12 See Notice, supra note 3, at 75 FR 67428.
13 See Rule 1080 regarding the Exchange’s
electronic order, trading, and execution system.
14 The current Phlx market model combining
open outcry and electronic trading is also used by
other options exchanges, such as Chicago Board
Options Exchange, Inc., NYSE Amex LLC and
NYSE Arca, Inc. Only electronic options trading is
done on other exchanges, such as the International
Securities Exchange, LLC and The NASDAQ Stock
Market LLC.
15 See Notice, supra note 3, at 75 FR 67428.
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thereunder applicable to a national
securities exchange.16 Specifically, the
Commission finds that the proposal is
consistent with Section 6(b)(5) of the
Act,17 in that the proposal has been
designed to promote just and equitable
principles of trade, and to protect
investors and the public interest.
By providing for Remote Specialists,
the Commission believes that Phlx’s
proposal will allow it to list, or continue
listing, an option in which it does not
have a registered floor-based specialist.
The concept of a Remote Specialist
would be similar to the existing class of
RSQTs, and several rules that are
presently applicable or unique to RSQTs
would be expanded to encompass
Remote Specialists. Such provisions are
generally reflective of the ‘‘remote’’
nature of a Remote Specialist and are
intended to accommodate the unique
circumstances of a remote quoting
specialist. However, the quoting
obligations applicable to a Remote
Specialist would be heightened over
that which is applicable to RSQTs to
reflect their status as ‘‘specialists’’ under
Exchange rules. Accordingly, all
specialists, whether floor-based or
remote, would be subject to similar
requirements and similar privileges.
Specific details of various provisions in
the Exchange’s proposed rule change are
discussed further below.
Specialist Rights and Obligations
Phlx proposes to define ‘‘remote
specialist’’ by amending Rule 1020 to
state that a remote specialist is a
qualified RSQT approved by the
Exchange to function as a specialist in
one or more options, if the Exchange
determines that it cannot allocate such
options to a non-remote (i.e., floorbased) specialist. As provided in
proposed Rule 501(f)(iii), a Remote
Specialist would have all the rights and
obligations of a specialist, unless
Exchange rules provide otherwise.
Further, Phlx proposes to underscore
this principle by indicating in Rule
1020(a) that the term ‘‘specialist’’
includes a Remote Specialist, as defined
in Rule 1020(a)(ii), that is registered
pursuant to Rule 501 and that a Remote
Specialist has all the rights and
obligations of an options specialist on
the Exchange.
Becoming a Remote Specialist
The Exchange also proposes to amend
Rule 501, which generally deals with
the process of applying for approval to
16 In approving the proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
17 15 U.S.C. 78f(b)(5).
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Fmt 4703
Sfmt 4703
be a specialist, to indicate that in certain
circumstances RSQTs may seek to
register as Remote Specialists.
Specifically, the process for becoming a
Remote Specialist would be a two-step
process.18 A member would first need to
qualify and register as a market maker
on the Exchange by becoming approved
as an RSQT pursuant to Rule 507.19
Then, if the RSQT wished to become a
Remote Specialist, it would need to
apply separately to become a Remote
Specialist pursuant to the separate
process set forth in Rule 501. Proposed
Rule 501(f) provides that RSQTs may
submit an application to be an approved
specialist unit 20 and the Exchange may
approve such application in one or more
options. Under Rule 501(f)(i), a Remote
Specialist could function as a specialist
in one or more options only if the
Exchange determines that it cannot
allocate such option(s) to a floor-based
specialist.21
The proposed rule would require that
each Remote Specialist be available and
reachable at all times during trading
hours for the product(s) allocated to
such specialist.22 Accordingly, a Remote
Specialist would be required to provide
Exchange staff and members with
telephonic and/or electronic
communication access to such specialist
and its associated staff at all times
during trading hours.23
Additionally, Phlx proposes to amend
Rule 501 and 506 to indicate that backup specialist arrangements and assistant
specialist requirements are not
applicable to Remote Specialists.24 In
support of this provision, the Exchange
notes its belief that the rationale for
18 Proposed Rule 507(f) would state that nothing
in Rule 507 shall be construed to automatically
qualify an RSQT to be a Remote Specialist on the
Exchange.
19 For all RSQT application and approval criteria,
see Rule 507(a)(i)(A) through (a)(i)(G).
20 A ‘‘specialist unit,’’ including a Remote
Specialist unit, may have one or more individual
‘‘specialists.’’
21 Additionally, in light of the proposed off-floor
Remote Specialist, Phlx proposes to modify Rule
506(c) to require that the Exchange’s decisions
regarding allocation of specialist privileges be not
only communicated in writing to floor members,
but also communicated in writing to all Exchange
members (both floor-based and off-floor).
22 See Proposed Rule 501(f)(ii). See also OFPA
E–1 (Required Staffing of Options Floor). A Remote
Specialist would be required to have a
representative available during the times required
by that OFPA.
23 To the extent necessary, the Exchange
represents that it would announce such
communication arrangements to its members via an
Options Trading Alert (‘‘OTA’’) or Options
Regulatory Alert (‘‘ORA’’).
24 The Exchange also proposes to clarify in
Advice E–1 that a Remote Specialist is exempt from
the obligation to have personnel on the trading
floor, while retaining the obligation to have a
representative available telephonically.
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Federal Register / Vol. 76, No. 15 / Monday, January 24, 2011 / Notices
requiring designation of an assistant
specialist and a back-up specialist in the
floor-based context is antiquated in the
context of the Exchange’s electronicbased trading system, in which assigned
RSQTs, in conjunction with other
assigned market makers on the
Exchange, are able to provide liquidity
in the event of a specialist’s temporary
absence.25 Further, a similar class of
remote market makers on Phlx (RSQTs)
does not have back-up personnel
requirements.26
mstockstill on DSKH9S0YB1PROD with NOTICES
Quoting Obligations and Priority
Remote Specialists would be subject
to all of the obligations of a floor-based
specialist on the Exchange, except
where otherwise noted in the
Exchange’s rules.27 Specifically, the
Exchange proposes to amend Rule
1014(b)(ii)(D)(2) to provide that Remote
Specialists in a particular option shall
be responsible to quote two-sided
markets in that option to the same
extent as on-floor specialists would be
required to do. The Exchange further
proposes to amend Rule
1014(b)(ii)(D)(1) to state that the RSQT
quoting requirements are not applicable
to RSQTs when they are acting in the
capacity of Remote Specialist. The
intent of this provision is to establish
equivalent quoting requirements as
between on-floor specialists and Remote
Specialists.
Currently, Rule 1014 provides that
quoting obligations do not apply to
RSQTs in certain types of options
products and establishes an exemption
for RSQTs and other market makers
from the obligations set forth in Rule
1014 in certain categories of products.
The Exchange proposes to add new
language to indicate that these
exemptions apply to RSQTs only when
they are acting as RSQTs, and would not
apply to RSQTs when they are
functioning as Remote Specialists in
particular options.
Further, the Exchange proposes to
amend sub-paragraph (b)(ii)(B) of Rule
1014 to clarify that an RSQT cannot
simultaneously quote both as RSQT and
as Remote Specialist in a particular
security. That is, if an RSQT is a Remote
Specialist in a particular security, the
Remote Specialist must make a market
as a specialist and may not make a
market as an RSQT in that particular
25 In addition, the Exchange notes that nearly all
option issues traded on Phlx are traded on multiple
exchanges. As such, the historical risk that is
addressed by the assistant/backup requirement
(namely, the ability of the Exchange to foster the
provision of liquidity) is diminished. See Notice,
supra note 3, at 75 FR 67429.
26 See Notice, supra note 3, at 75 FR 67429, n.20.
27 See Proposed Rule 501(f)(iii).
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security.28 Additionally, the Exchange
proposes to add Remote Specialists to
Commentary .05(c)(ii) of Rule 1014 to
reflect that Remote Specialists will be
treated similar to RSQTs and out-ofcrowd SQTs for priority purposes under
that Rule because they do not engage in
open outcry floor trading.
In addition, Commentary .05(b) to
Rule 1014 states that SQTs and RSQTs
can submit orders electronically. The
Exchange is amending Commentary
.05(b) to provide that Remote Specialists
also may submit quotes electronically.
Further, Commentary .05(c)(i) provides
that if a Floor Broker presents a nonelectronic order in an option assigned to
an RSQT or an off-floor SQT, such
RSQT or SQT may not participate in
trades stemming from the non-electronic
order unless the order is executed at the
price quoted by the non-crowd RSQT or
SQT at the time of execution. The
Exchange proposes to include Remote
Specialists in Commentary .05(c)(i) to
establish priority for Remote Specialists
that is coextensive with the priority
afforded in that Rule to RSQTs and outof-crowd SQTs.
The Commission believes that these
provisions are appropriate to set forth
equivalent obligations and standards
applicable to Remote Specialists that are
equivalent to the obligations and
standards applicable to floor-based
specialists. The Commission believes
that a specialist must have an
affirmative obligation to hold itself out
as willing to buy and sell options for its
own account on a regular or continuous
basis to justify receiving unique benefits
available to the specialist. The
Commission believes that Phlx’s rules
impose such affirmative obligations on
Remote Specialists that choose to
operate remotely and notes that, under
the proposal, Remote Specialists acting
from a remote location would still be
required to meet the obligations of a
floor-based specialist.29 Furthermore,
the Commission believes that RSQTs
that act as Remote Specialists where no
on-floor specialists are willing to accept,
or retain, an option allocation, would
28 As an example of the operation of the proposed
rules wherein an RSQT may function as a
traditional RSQT and also function as a Remote
Specialist, if an RSQT is allocated two option
classes as a Remote Specialist, in those two classes
the Remote Specialist will have the very same
quoting (market making) requirements that are
currently applicable to all specialists, including
continuous quoting obligations. In the remaining
classes to which an RSQT is appointed, the RSQT
will have the same quoting (market making)
requirements that are applicable to all RSQTs. The
RSQT will not be able to submit quotes or act as
RSQT in the two allocated Remote Specialist
classes. See Amendment No. 1 to File No. SR–Phlx–
2010–145 at 15 n.29 (January 11, 2011).
29 See id.
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4143
provide or continue to provide a market
that would not otherwise exist on the
Exchange, which should benefit traders,
investors, and public customers making
hedging and trading decisions. Further,
the proposed rules clearly provide that
an RSQT that becomes a Remote
Specialist in a particular security must
make a market in that security as a
specialist and may not make a market as
an RSQT in that particular security.
OFPA and Advices
The Exchange also proposes to clarify
several OFPAs regarding a Remote
Specialist’s off-floor electronic quoting
and trading capabilities. Particularly,
the Exchange is amending Advice B–3
to state that a Remote Specialist is
exempted from the requirement that an
ROT, including a specialist, trade a
certain percentage of volume on the
Exchange in person. The change reflects
the fact that a Remote Specialist would
not be physically present on the
Exchange’s trading floor and would
instead submit quotes and orders
remotely. Additionally, the Exchange is
deleting Advice A–7 (specialist
responsibilities for cancellations) and
Advice A–10 (specialists trading the
book) as specialists are no longer agents
for the book with respect to Advice A–
10, and both Advices are no longer
required in light of subsequent
developments in the Exchange’s
electronic trading and communication
capabilities.30
Surveillance
Finally, the Exchange represents that
it has developed surveillance
procedures for its auction and electronic
markets and will use the surveillance
procedures now in place to perform
surveillance of Remote Specialists.31
Accelerated Approval
In Amendment No. 1, the Exchange
clarifies the role of a RSQT acting in the
capacities of both a RSQT and a Remote
Specialist to state that when acting as a
Remote Specialist in specifically
allocated classes the Remote Specialist
will have all the same obligations that
are applicable to Specialists, including
continuous quoting obligations.32
Amendment No. 1 also amended
proposed Rule 501(f)(ii) to require a
Remote Specialist to provide Exchange
staff with either telephonic or electronic
communication access (as originally
proposed, only telephonic access was
specified). Finally, Amendment No. 1
30 See
id. at 17.
Notice, supra note 3, at 75 FR 67431.
32 See Amendment No. 1, supra note 28, at 15
n.29.
31 See
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Federal Register / Vol. 76, No. 15 / Monday, January 24, 2011 / Notices
proposes to delete (rather than amend,
as originally proposed) Advices A–7
and A–10, which the Exchange believes
are no longer necessary for the reasons
discussed above. Because the changes
proposed in Amendment No. 1 are
minor changes to the proposal that do
not raise material issues, the
Commission finds that good cause
exists, consistent with Section 19(b) of
the Act,33 for approving the proposed
rule change, as modified by Amendment
No. 1, prior to the thirtieth day after
publication of notice of filing of
Amendment No. 1 in the Federal
Register.
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.
1, is consistent with the Act. Comments
may be submitted by any of the
following methods:
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
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–
2010–145 and should be submitted on
or before February 14, 2011.
and Fees for Adding and Removing
Liquidity in Select Symbols.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaqtrader.com/
micro.aspx?id=PHLXfilings, 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,34 that the
proposed rule change (SR–Phlx–2010–
145), as modified by Amendment No. 1,
be, and it hereby is, approved.
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.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Elizabeth M. Murphy,
Secretary.
mstockstill on DSKH9S0YB1PROD with NOTICES
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–2010–145 on the
subject line.
[FR Doc. 2011–1297 Filed 1–21–11; 8:45 am]
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–2010–145. 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 Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change by NASDAQ
OMX PHLX LLC Relating to Rebates
and Fees for Adding and Removing
Liquidity in Select Symbols
33 15
U.S.C. 78s(b).
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15:51 Jan 21, 2011
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63718; File No. SR–Phlx–
2011–005]
January 14, 2011.
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 January 5,
2011, NASDAQ OMX PHLX LLC (‘‘Phlx’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Select Symbols in Section I of the
Exchange’s Fee Schedule titled Rebates
34 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
35 17
PO 00000
Frm 00057
Fmt 4703
Sfmt 4703
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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 the list of Select
Symbols 3 in Section I of the Exchange’s
Fee Schedule, titled Rebates and Fees
for Adding and Removing Liquidity in
Select Symbols. Specifically, the
Exchange is proposing to remove
Motorola, Inc. (‘‘MOT’’) and add
Motorola Solutions, Inc. (‘‘MSI’’) due to
a recent corporate action which took
place on January 4, 2011.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 4
in general, and furthers the objectives of
Section 6(b)(4) of the Act 5 in particular,
in that it is an equitable allocation of
reasonable fees and other charges among
Exchange members and other persons
using its facilities. The Exchange
believes that the proposed removal of
MOT and the proposed addition of MSI
from the Select Symbols are both
equitable and reasonable because those
amendments would uniformly apply to
all categories of participants.
3 The term ‘‘Select Symbols’’ refers to the symbols
which are subject to the Rebates and Fees for
Adding and Removing Liquidity in Select Symbols
in Section I of the Exchange’s Fee Schedule.
4 15 U.S.C. 78f(b).
5 15 U.S.C. 78f(b)(4).
E:\FR\FM\24JAN1.SGM
24JAN1
Agencies
[Federal Register Volume 76, Number 15 (Monday, January 24, 2011)]
[Notices]
[Pages 4141-4144]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-1297]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63717; File No. SR-Phlx-2010-145]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval to a
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating
to the Establishment of Remote Specialists
January 14, 2011.
I. Introduction
On October 14, 2010, NASDAQ OMX PHLX LLC (``Phlx'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to allow certain Phlx exchange members to act as
option specialists that are not physically present on the option
trading floor. The proposed rule change was published for comment in
the Federal Register on November 2, 2010.\3\ On January 11, 2011, the
Exchange filed Amendment No. 1 to the proposed rule change.\4\ The
Commission received no comments on the proposal. This order provides
notice of filing of Amendment No. 1 and grants accelerated approval to
the proposed rule change, as modified by Amendment No. 1.
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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. 63192 (October 27,
2010), 75 FR 67427 (``Notice'').
\4\ On December 16, 2010, the Exchange extended the period for
Commission consideration of its proposal to January 14, 2011. See 15
U.S.C. 78s(b)(2)(A)(ii)(II) (concerning the ability of the self-
regulatory organization that filed a proposed rule change to extend
the time period for Commission consideration of its proposal).
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II. Description of the Proposal
The Exchange proposes to amend Phlx Option Rules 501, 506, 507,
1014, and 1020 to provide for remote specialists under limited
circumstances and amend its Option Floor Procedure Advices \5\ B-3 and
E-1 to reflect the new category of remote specialist.
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\5\ Phlx's Options Floor Procedure Advices (``OFPAs'' or
``Advices'') are part of the Exchange's minor rule plan (``MRP'' or
``Minor Rule Plan''), which consists of Advices with preset fines,
pursuant to Rule 19d-1(c) under the Act (17 CFR 240.19d-1(c)). See
e.g., Securities Exchange Act Release No. 50997 (January 7, 2005),
70 FR 2444 (January 13, 2005) (SR-Phlx-2003-40) (order approving the
Exchange's Options Floor Broker Management System). As this time,
Phlx is not proposing to change any of the fines that are applicable
under any of the Advices.
---------------------------------------------------------------------------
Currently, Phlx has several types of Registered Options Traders
(``ROTs'') \6\ that can register as market makers on the Exchange,
including specialists, Streaming Quote Traders (``SQTs''),\7\ and
Remote Streaming Quote Traders (``RSQTs'').\8\ Specialists are floor-
based Exchange members who are registered as options specialists
pursuant to Rule 1020(a). An SQT has a physical presence on the options
floor (though they may be ``in-crowd'' or ``out-of-crowd'') and is
authorized to generate and submit option quotations electronically in
options to which such SQT is assigned, but may only do so when he or
she is physically present on the floor of the Exchange. An RSQT, on the
other hand, has no physical trading floor presence and instead is
authorized to generate and submit option quotations electronically in
options to which such RSQT has been assigned. The various market making
requirements applicable to each category of market maker are set forth
in Rule 1014. Rules 500 through 599 (the ``Allocation and Assignment
Rules'') generally describe the process for application and appointment
of specialists, SQTs and RSQTs, as well as the allocation of classes of
options to them.\9\
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\6\ A ROT is a member who has received permission from the
Exchange to trade in options for his own account. Phlx also has
Directed SQTs and Directed RSQTs, which receive Directed Orders as
defined in Rule 1080(l)(i)(A). Specialists may likewise receive
Directed Orders. Further, Phlx rules also provide for non-streaming
ROTs (``non-SQT ROT''), which can make markets in certain options on
an issue-by-issue basis. See Rule 1014(b)(ii)(C).
\7\ See Rule 1014(b)(ii)(A).
\8\ See Rule 1014(b)(ii)(B).
\9\ The Allocation and Assignment Rules also indicate under what
circumstances new allocations may not be made. See, e.g.,
Supplementary Material .01 to Rule 506.
---------------------------------------------------------------------------
Accordingly, while Phlx's rules provide for remote market-making
ROTs (i.e., RSQTs), they do not provide for remote specialists. Rather,
Phlx's rules currently require that each options class and series
listed on the Exchange have a specialist physically present on the
[[Page 4142]]
options floor (``floor-based specialist'').\10\ The Exchange notes
that, historically, a floor-based specialist was required for each
options class and series, consistent with the traditional model of an
open outcry auction market featuring trading crowds at physical trading
posts on the floor and Floor Brokers \11\ that represent orders on the
floor on behalf of others.\12\ In addition to its floor-based trading
environment, Phlx also operates an electronic system to execute option
orders,\13\ resulting in a hybrid-model options market that combines a
traditional open outcry auction market trading floor with electronic
trading (the ``current Phlx market'').\14\
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\10\ The Exchange states in the Notice that at least one
exchange that uses a specialist system has allowed certain option
series to trade without a designated lead market maker (specialist).
\11\ See Rule 1060.
\12\ See Notice, supra note 3, at 75 FR 67428.
\13\ See Rule 1080 regarding the Exchange's electronic order,
trading, and execution system.
\14\ The current Phlx market model combining open outcry and
electronic trading is also used by other options exchanges, such as
Chicago Board Options Exchange, Inc., NYSE Amex LLC and NYSE Arca,
Inc. Only electronic options trading is done on other exchanges,
such as the International Securities Exchange, LLC and The NASDAQ
Stock Market LLC.
---------------------------------------------------------------------------
The Exchange notes that it has found it to be difficult at times,
if not impossible, to allocate certain option products. For example,
the Exchange has found that specialists may, at times, relinquish their
options privileges, when, for example, the underlying securities are
involved in a takeover, a merger/acquisition situation, or some type of
rights offering.\15\ Without a floor-based specialist that is willing
to retain (or accept) allocation of an option, the Exchange may not
list such options pursuant to its current rules. This, in turn, may
negatively impact market participants and investors to the extent that
the sudden delisting of a Phlx option limits their choice of execution
venues. As discussed below, Phlx's proposed rule change is intended to
address the difficulty that Phlx has faced in allocating options where
no floor-based specialists are willing to accept the allocation.
Specifically, Phlx proposes to allow for remote specialists, as it
currently does for RSQTs, in order to expand the universe of market
participants that could assume the role of specialist and help ensure
the listing, or continued listing, of options on Phlx.
---------------------------------------------------------------------------
\15\ See Notice, supra note 3, at 75 FR 67428.
---------------------------------------------------------------------------
III. Discussion
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\16\ Specifically, the
Commission finds that the proposal is consistent with Section 6(b)(5)
of the Act,\17\ in that the proposal has been designed to promote just
and equitable principles of trade, and to protect investors and the
public interest.
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\16\ In approving the proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
By providing for Remote Specialists, the Commission believes that
Phlx's proposal will allow it to list, or continue listing, an option
in which it does not have a registered floor-based specialist. The
concept of a Remote Specialist would be similar to the existing class
of RSQTs, and several rules that are presently applicable or unique to
RSQTs would be expanded to encompass Remote Specialists. Such
provisions are generally reflective of the ``remote'' nature of a
Remote Specialist and are intended to accommodate the unique
circumstances of a remote quoting specialist. However, the quoting
obligations applicable to a Remote Specialist would be heightened over
that which is applicable to RSQTs to reflect their status as
``specialists'' under Exchange rules. Accordingly, all specialists,
whether floor-based or remote, would be subject to similar requirements
and similar privileges. Specific details of various provisions in the
Exchange's proposed rule change are discussed further below.
Specialist Rights and Obligations
Phlx proposes to define ``remote specialist'' by amending Rule 1020
to state that a remote specialist is a qualified RSQT approved by the
Exchange to function as a specialist in one or more options, if the
Exchange determines that it cannot allocate such options to a non-
remote (i.e., floor-based) specialist. As provided in proposed Rule
501(f)(iii), a Remote Specialist would have all the rights and
obligations of a specialist, unless Exchange rules provide otherwise.
Further, Phlx proposes to underscore this principle by indicating in
Rule 1020(a) that the term ``specialist'' includes a Remote Specialist,
as defined in Rule 1020(a)(ii), that is registered pursuant to Rule 501
and that a Remote Specialist has all the rights and obligations of an
options specialist on the Exchange.
Becoming a Remote Specialist
The Exchange also proposes to amend Rule 501, which generally deals
with the process of applying for approval to be a specialist, to
indicate that in certain circumstances RSQTs may seek to register as
Remote Specialists. Specifically, the process for becoming a Remote
Specialist would be a two-step process.\18\ A member would first need
to qualify and register as a market maker on the Exchange by becoming
approved as an RSQT pursuant to Rule 507.\19\ Then, if the RSQT wished
to become a Remote Specialist, it would need to apply separately to
become a Remote Specialist pursuant to the separate process set forth
in Rule 501. Proposed Rule 501(f) provides that RSQTs may submit an
application to be an approved specialist unit \20\ and the Exchange may
approve such application in one or more options. Under Rule 501(f)(i),
a Remote Specialist could function as a specialist in one or more
options only if the Exchange determines that it cannot allocate such
option(s) to a floor-based specialist.\21\
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\18\ Proposed Rule 507(f) would state that nothing in Rule 507
shall be construed to automatically qualify an RSQT to be a Remote
Specialist on the Exchange.
\19\ For all RSQT application and approval criteria, see Rule
507(a)(i)(A) through (a)(i)(G).
\20\ A ``specialist unit,'' including a Remote Specialist unit,
may have one or more individual ``specialists.''
\21\ Additionally, in light of the proposed off-floor Remote
Specialist, Phlx proposes to modify Rule 506(c) to require that the
Exchange's decisions regarding allocation of specialist privileges
be not only communicated in writing to floor members, but also
communicated in writing to all Exchange members (both floor-based
and off-floor).
---------------------------------------------------------------------------
The proposed rule would require that each Remote Specialist be
available and reachable at all times during trading hours for the
product(s) allocated to such specialist.\22\ Accordingly, a Remote
Specialist would be required to provide Exchange staff and members with
telephonic and/or electronic communication access to such specialist
and its associated staff at all times during trading hours.\23\
---------------------------------------------------------------------------
\22\ See Proposed Rule 501(f)(ii). See also OFPA E-1 (Required
Staffing of Options Floor). A Remote Specialist would be required to
have a representative available during the times required by that
OFPA.
\23\ To the extent necessary, the Exchange represents that it
would announce such communication arrangements to its members via an
Options Trading Alert (``OTA'') or Options Regulatory Alert
(``ORA'').
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Additionally, Phlx proposes to amend Rule 501 and 506 to indicate
that back-up specialist arrangements and assistant specialist
requirements are not applicable to Remote Specialists.\24\ In support
of this provision, the Exchange notes its belief that the rationale for
[[Page 4143]]
requiring designation of an assistant specialist and a back-up
specialist in the floor-based context is antiquated in the context of
the Exchange's electronic-based trading system, in which assigned
RSQTs, in conjunction with other assigned market makers on the
Exchange, are able to provide liquidity in the event of a specialist's
temporary absence.\25\ Further, a similar class of remote market makers
on Phlx (RSQTs) does not have back-up personnel requirements.\26\
---------------------------------------------------------------------------
\24\ The Exchange also proposes to clarify in Advice E-1 that a
Remote Specialist is exempt from the obligation to have personnel on
the trading floor, while retaining the obligation to have a
representative available telephonically.
\25\ In addition, the Exchange notes that nearly all option
issues traded on Phlx are traded on multiple exchanges. As such, the
historical risk that is addressed by the assistant/backup
requirement (namely, the ability of the Exchange to foster the
provision of liquidity) is diminished. See Notice, supra note 3, at
75 FR 67429.
\26\ See Notice, supra note 3, at 75 FR 67429, n.20.
---------------------------------------------------------------------------
Quoting Obligations and Priority
Remote Specialists would be subject to all of the obligations of a
floor-based specialist on the Exchange, except where otherwise noted in
the Exchange's rules.\27\ Specifically, the Exchange proposes to amend
Rule 1014(b)(ii)(D)(2) to provide that Remote Specialists in a
particular option shall be responsible to quote two-sided markets in
that option to the same extent as on-floor specialists would be
required to do. The Exchange further proposes to amend Rule
1014(b)(ii)(D)(1) to state that the RSQT quoting requirements are not
applicable to RSQTs when they are acting in the capacity of Remote
Specialist. The intent of this provision is to establish equivalent
quoting requirements as between on-floor specialists and Remote
Specialists.
---------------------------------------------------------------------------
\27\ See Proposed Rule 501(f)(iii).
---------------------------------------------------------------------------
Currently, Rule 1014 provides that quoting obligations do not apply
to RSQTs in certain types of options products and establishes an
exemption for RSQTs and other market makers from the obligations set
forth in Rule 1014 in certain categories of products. The Exchange
proposes to add new language to indicate that these exemptions apply to
RSQTs only when they are acting as RSQTs, and would not apply to RSQTs
when they are functioning as Remote Specialists in particular options.
Further, the Exchange proposes to amend sub-paragraph (b)(ii)(B) of
Rule 1014 to clarify that an RSQT cannot simultaneously quote both as
RSQT and as Remote Specialist in a particular security. That is, if an
RSQT is a Remote Specialist in a particular security, the Remote
Specialist must make a market as a specialist and may not make a market
as an RSQT in that particular security.\28\ Additionally, the Exchange
proposes to add Remote Specialists to Commentary .05(c)(ii) of Rule
1014 to reflect that Remote Specialists will be treated similar to
RSQTs and out-of-crowd SQTs for priority purposes under that Rule
because they do not engage in open outcry floor trading.
---------------------------------------------------------------------------
\28\ As an example of the operation of the proposed rules
wherein an RSQT may function as a traditional RSQT and also function
as a Remote Specialist, if an RSQT is allocated two option classes
as a Remote Specialist, in those two classes the Remote Specialist
will have the very same quoting (market making) requirements that
are currently applicable to all specialists, including continuous
quoting obligations. In the remaining classes to which an RSQT is
appointed, the RSQT will have the same quoting (market making)
requirements that are applicable to all RSQTs. The RSQT will not be
able to submit quotes or act as RSQT in the two allocated Remote
Specialist classes. See Amendment No. 1 to File No. SR-Phlx-2010-145
at 15 n.29 (January 11, 2011).
---------------------------------------------------------------------------
In addition, Commentary .05(b) to Rule 1014 states that SQTs and
RSQTs can submit orders electronically. The Exchange is amending
Commentary .05(b) to provide that Remote Specialists also may submit
quotes electronically. Further, Commentary .05(c)(i) provides that if a
Floor Broker presents a non-electronic order in an option assigned to
an RSQT or an off-floor SQT, such RSQT or SQT may not participate in
trades stemming from the non-electronic order unless the order is
executed at the price quoted by the non-crowd RSQT or SQT at the time
of execution. The Exchange proposes to include Remote Specialists in
Commentary .05(c)(i) to establish priority for Remote Specialists that
is coextensive with the priority afforded in that Rule to RSQTs and
out-of-crowd SQTs.
The Commission believes that these provisions are appropriate to
set forth equivalent obligations and standards applicable to Remote
Specialists that are equivalent to the obligations and standards
applicable to floor-based specialists. The Commission believes that a
specialist must have an affirmative obligation to hold itself out as
willing to buy and sell options for its own account on a regular or
continuous basis to justify receiving unique benefits available to the
specialist. The Commission believes that Phlx's rules impose such
affirmative obligations on Remote Specialists that choose to operate
remotely and notes that, under the proposal, Remote Specialists acting
from a remote location would still be required to meet the obligations
of a floor-based specialist.\29\ Furthermore, the Commission believes
that RSQTs that act as Remote Specialists where no on-floor specialists
are willing to accept, or retain, an option allocation, would provide
or continue to provide a market that would not otherwise exist on the
Exchange, which should benefit traders, investors, and public customers
making hedging and trading decisions. Further, the proposed rules
clearly provide that an RSQT that becomes a Remote Specialist in a
particular security must make a market in that security as a specialist
and may not make a market as an RSQT in that particular security.
---------------------------------------------------------------------------
\29\ See id.
---------------------------------------------------------------------------
OFPA and Advices
The Exchange also proposes to clarify several OFPAs regarding a
Remote Specialist's off-floor electronic quoting and trading
capabilities. Particularly, the Exchange is amending Advice B-3 to
state that a Remote Specialist is exempted from the requirement that an
ROT, including a specialist, trade a certain percentage of volume on
the Exchange in person. The change reflects the fact that a Remote
Specialist would not be physically present on the Exchange's trading
floor and would instead submit quotes and orders remotely.
Additionally, the Exchange is deleting Advice A-7 (specialist
responsibilities for cancellations) and Advice A-10 (specialists
trading the book) as specialists are no longer agents for the book with
respect to Advice A-10, and both Advices are no longer required in
light of subsequent developments in the Exchange's electronic trading
and communication capabilities.\30\
---------------------------------------------------------------------------
\30\ See id. at 17.
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Surveillance
Finally, the Exchange represents that it has developed surveillance
procedures for its auction and electronic markets and will use the
surveillance procedures now in place to perform surveillance of Remote
Specialists.\31\
---------------------------------------------------------------------------
\31\ See Notice, supra note 3, at 75 FR 67431.
---------------------------------------------------------------------------
Accelerated Approval
In Amendment No. 1, the Exchange clarifies the role of a RSQT
acting in the capacities of both a RSQT and a Remote Specialist to
state that when acting as a Remote Specialist in specifically allocated
classes the Remote Specialist will have all the same obligations that
are applicable to Specialists, including continuous quoting
obligations.\32\ Amendment No. 1 also amended proposed Rule 501(f)(ii)
to require a Remote Specialist to provide Exchange staff with either
telephonic or electronic communication access (as originally proposed,
only telephonic access was specified). Finally, Amendment No. 1
[[Page 4144]]
proposes to delete (rather than amend, as originally proposed) Advices
A-7 and A-10, which the Exchange believes are no longer necessary for
the reasons discussed above. Because the changes proposed in Amendment
No. 1 are minor changes to the proposal that do not raise material
issues, the Commission finds that good cause exists, consistent with
Section 19(b) of the Act,\33\ for approving the proposed rule change,
as modified by Amendment No. 1, prior to the thirtieth day after
publication of notice of filing of Amendment No. 1 in the Federal
Register.
---------------------------------------------------------------------------
\32\ See Amendment No. 1, supra note 28, at 15 n.29.
\33\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------
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. 1, 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-2010-145 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-2010-145. 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 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 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-2010-145 and should be
submitted on or before February 14, 2011.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\34\ that the proposed rule change (SR-Phlx-2010-145), as modified
by Amendment No. 1, be, and it hereby is, approved.
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\34\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
---------------------------------------------------------------------------
\35\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-1297 Filed 1-21-11; 8:45 am]
BILLING CODE 8011-01-P