Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Sponsored Access, 73019-73024 [2015-29707]
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Federal Register / Vol. 80, No. 225 / Monday, November 23, 2015 / Notices
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Participants, and allocates credits to
where it believes it will receive the best
result in terms of improvement to
market quality. In this case, Nasdaq is
limiting the credit to NOM market
makers because it believes that market
quality will be improved the most by
market makers actively providing
liquidity and this benefits both Nasdaq
and NOM participants.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq does not believe that the
proposed rule changes will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as
amended.15 Nasdaq notes that it
operates in a highly competitive market
in which market participants can
readily favor competing venues if they
deem fee levels at a particular venue to
be excessive, or rebate opportunities
available at other venues to be more
favorable. In such an environment,
Nasdaq must continually adjust its fees
to remain competitive with other
exchanges and with alternative trading
systems that have been exempted from
compliance with the statutory standards
applicable to exchanges. Because
competitors are free to modify their own
fees in response, and because market
participants may readily adjust their
order routing practices. [sic]
In this instance, the proposed changes
to the LMM Program and the charges
assessed and credits available to
Participants for execution of securities
in securities of all three Tapes do not
impose a burden on competition
because the Exchange’s execution
services are completely voluntary and
subject to extensive competition both
from other exchanges and from offexchange venues. The Exchange is
modifying a market improving incentive
program and is also adjusting credit
tiers provided Participants in return for
market improving activity, in an effort
to make them more effective. Such
changes may foster competition among
exchanges and other market venues to
provide similar incentives, which
would benefit all market participants.
The Exchange must weigh the costs of
offering incentives to market
participants against the desired benefit
the Exchange seeks to achieve. To the
extent these incentives are inefficient or
at [sic] fail to achieve these goals, the
Exchange may from time to time adjust
the level of incentive and/or the market
improving activity required to qualify
for the incentive credits and fees, or
adopt an alternative incentive in lieu
thereof. Such changes are reflective of
robust competition among exchanges
and other market venues. In sum, if the
changes proposed herein are
unattractive to market participants it is
likely that Nasdaq will lose market
share as a result. As such, the Exchange
does not believe the proposed changes
will place a burden on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act 16 and Rule
19b–4(f)(2) thereunder.17 At any time
within 60 days of the filing of such
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings under Section
19(b)(2)(B) of the Act 18 to determine
whether the proposed rule change
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File No. SR–NASDAQ–
2015–137, and should be submitted on
or before December 14, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–29705 Filed 11–20–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–76452; File No. SR–Phlx–
2015–93]
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File No. SR–
NASDAQ–2015–137 on the subject line.
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Sponsored Access
Paper Comments
November 17, 2015.
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File No.
SR–NASDAQ–2015–137. This file
number should be included on the
subject line if email is used. To help the
U.S.C. 78f(b)(8).
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U.S.C. 78fs(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
18 15 U.S.C. 78fs(b)(2)(B).
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 November
4, 2015, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
16 15
19
17 17
15 15
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17 CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 80, No. 225 / Monday, November 23, 2015 / Notices
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
Rule 1094, entitled ‘‘Sponsored
Participants’’ (1) define the term
‘‘Sponsored Access’’ and ‘‘Customer
Agreement;’’ (2) specify the
requirements to comply with Rule
15c3–5 under the Securities Exchange
Act of 1934 (‘‘Market Access Rule’’); (3)
remove the requirement that each
Sponsored Participant and each
Sponsoring Member Organization must
enter into certain agreements with the
Exchange; and (4) remove PSX Rule
3211 as well as certain definitions.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
nasdaqomxphlx.cchwallstreet.com/, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
certain agreements with the Exchange to
streamline its rule and remove
unnecessarily burdensome notice
requirements to the Exchange; and (4)
remove PSX Rule 3211, entitled
‘‘Application of Other Rules of the
Exchange,’’ because Phlx Rule 1094 will
be applicable to market participants
trading on PSX, and remove the
definitions of Sponsored Participant and
Sponsoring Member Organization in
Rule 1, which relate to PSX Rules.
Defining Sponsored Access
A Sponsored Participant may be a
member or a non-member of the
Exchange, such as an institutional
investor, that gains access to the
Exchange 3 and trades under a
Sponsoring Member Organization’s
execution and clearing identity
pursuant to sponsorship arrangements
currently set forth in Phlx Rule 1094.
The Exchange is proposing to define the
term ‘‘Sponsored Access’’ to clarify the
type of market access arrangement that
is subject to Phlx Rule 1094. The
Exchange proposes to amend Phlx Rule
1094(a) to add the following definition,
‘‘Sponsored Access shall mean an
arrangement whereby a member
organization permits its customers to
enter orders into the Exchange’s trading
system that bypass the member
organization’s trading system and are
routed directly to the Exchange,
including routing through a service
bureau or other third party technology
provider.’’ This definition was derived
from the Commission’s description of
Sponsored Access used in the release
approving the Market Access Rule.4 The
Exchange believes that defining
Sponsored Access in Phlx Rule 1094
will provide market participants with
greater clarity concerning Sponsored
Access and their obligations with
respect to this type of access
arrangement.
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1. Purpose
Defining Customer Agreement
The Exchange proposes to amend
Phlx Rule 1094(b)(i) to define the
The purpose of the filing is to amend
Rule 1094 entitled, ‘‘Sponsored
Participants’’ to: (1) Define the term
‘‘Sponsored Access,’’ and specifically
stating that compliance with the Market
Access Rule is required, and defining
‘‘Customer Agreement’’ to refer to the
agreement that must be executed
between the Sponsoring Participant and
the Sponsoring Member Organization;
(2) specify the requirements to comply
with the Market Access Rule; (3) remove
the requirement that each Sponsored
Participant and each Sponsoring
Member Organization must enter into
3 For example, a broker-dealer may allow its
customer—whether an institution such as a hedge
fund, mutual fund, bank or insurance company, an
individual, or another broker-dealer—to use the
broker-dealer’s MPID, account or other mechanism
or mnemonic used to identify a market participant
for the purposes of electronically accessing the
Exchange.
4 The Market Access Rule, among other things,
requires broker-dealers providing others with access
to an exchange or alternative trading system to
establish, document, and maintain a system of risk
management controls and supervisory procedures
reasonably designed to manage the financial,
regulatory, and other risks of providing such access.
See Securities Exchange Act Release No. 63241
(November 3, 2010), 75 FR 69792 (November 15,
2010).
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agreement that Sponsored Participants
must enter into and maintain with one
or more Sponsoring Member
Organizations to establish proper
relationship(s) and account(s) through
which the Sponsored Participant may
trade on the Exchange, as a ‘‘Customer
Agreement.’’
Market Access Rule
Pursuant to Phlx Rule 1094, the
Sponsoring Member Organization is
responsible for the activities of the
Sponsored Participant. Sponsored
Participants are required to have
procedures in place to comply with
Exchange rules, and the Sponsoring
Member Organization takes
responsibility for the Sponsored
Participant’s activity on the Exchange.
Members may have multiple Sponsored
Access relationships in place at a given
time. The Exchange’s examination
program assesses compliance with Phlx
Rule 1094, among other rules.5 The
Exchange proposes to specifically
enumerate within Phlx Rule 1094 the
member’s obligation to comply with the
Market Access Rule, which members are
currently required to comply with
respecting market access. The Exchange
believes that specifying the obligation to
comply with the Market Access Rule
specifically will reinforce that Phlx Rule
1094 presupposes member compliance
with the Market Access Rule.
Elimination of Certain Contract
Requirements
At this time, the Exchange proposes to
remove requirements to submit certain
forms to the Exchange. There are three
forms that are currently required by
Phlx Rule 1094: (1) An agreement
between the Sponsored Participant and
the Exchange (‘‘Exchange Agreement’’);
(2) an Access Agreement between the
Sponsored Participant and its
Sponsoring Member Organization that is
provided to the Exchange; and (3) a
Sponsored Participant Addendum to its
Access Agrement (hereinafter
‘‘addendum’’) provided to the Exchange
by the Sponsoring Member
Organization. Phlx Rule 1094 will
continue to require that each Sponsored
Participants enter into a Customer
Agreement with each Sponsoring
member to establish proper
relationship(s) and account(s) through
which the Sponsored Participant may
trade on the Exchange. These Customer
Agreement(s) must incorporate the
Sponsorship Provisions set forth in
5 The Exchange has a Regulatory Services
Agreement with Financial Industry Regulatory
Authority (‘‘FINRA’’) to conduct regulatory
examinations, among other obligations.
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paragraph (ii) in Phlx Rule 1094.6 The
Customer Agreement remains
unaffected by this rule proposal. Also,
the Exchange is proposing to amend
Phlx Rule 1094 to identify the
aforementioned agreement as the
‘‘Customer Agreement.’’
Today, only members may request
connectivity to the Exchange. A member
may obtain one or more ports for the
purpose of providing Sponsored Access.
If separate ports are requested by a
member for the purpose of providing
Sponsored Access, the member must
request those ports from the Exchange
and the member is responsible for the
Sponsored Participant’s activity on the
Exchange. In all circumstances, the
Exchange will only permit members to
request connectivity to the market and
the member is responsible for all
customer orders submitted through the
member’s port.
First, the Exchange believes that
completing and submitting the
Exchange Agreement, Access Agreement
and Addendum is unnecessarily
burdensome in light of the current
structure in place at the Exchange. Only
members may request connectivity to
the Exchange by contacting Phlx
Subscriber Services. Such connection by
the member requires approval by the
Exchange for the purpose of testing as
well as other relevant information
sharing with the Exchange by the
member to obtain a port. The Exchange
is aware of the member responsible for
each of its ports, however the Exchange
may not be aware of the member’s
Sponsored Access arrangements due to
varied ways that a member may utilize
a port. The Exchange believes the
requirement to also complete and
submit an Exchange Agreement, Access
Agreement and Addendum with our
Phlx Membership Department is viewed
as unnecessarily burdensome by
members because of the multitude of
relationships the member has with
various customers. Members have
expressed to the Exchange that they
have multiple relationships with
customers, which customer
relationships change over time.7
Members have indicated that the
6 The Customer Agreement is required to include,
among other language, all orders entered by the
Sponsored Participants and any person acting on
behalf of or in the name of such Sponsored
Participant and any executions occurring as a result
of such orders are binding in all respects on the
Sponsoring Member Organization and, also,
Sponsoring Member Organization is responsible for
any and all actions taken by such Sponsored
Participant and any person acting on behalf of or
in the name of such Sponsored Participant.
7 For example, a broker-dealer’s customers, which
could include hedge funds, institutional investors,
individual investors, and other broker-dealers.
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necessity to continuously disclose the
updated customer relationships to the
Exchange is burdensome and
unnecessary as they remain responsible
for all activity conducted on the
Exchange through a port assigned to the
member. Further such information is
available to the Exchange upon
Exchange request from its regulatory
group.8
Second, the Exchange believes that
the Exchange Agreement between the
Sponsored Participant and the Exchange
is also unnecessarily burdensome. The
requirement to provide this form was
intended to give the Exchange
notification that such a relationship
existed and to ensure that the
Sponsored Participant was informed of
the Exchange’s Limited Liability
Company Agreement, By-Laws, Rules
and procedures. The agreements also
provided the Exchange with contractual
privity, which would no longer exist
with the removal of the Exchange
Agreement. The Exchange does not
believe the loss of privity with the
Sponsored Participant creates a concern
as the Exchange has the ability to
remove access to the port 9 at any time
if the activity of the Sponsored
Participant warrants such removal. In
addition, as discussed below, the
Sponsored Participant will be made
aware of its obligations through the
Customer Agreement that it executed
with the Sponsoring Member. As noted
above, the Exchange only permits its
members to request connectivity to the
Exchange’s System and members
responsible for all trades submitted
through such ports. Pursuant to Phlx
Rule 1094 the trading activity of a
Sponsored Participant must be
monitored by the Sponsoring Member
Organization for compliance with the
terms of the Customer Agreement with
the Sponsoring Participant.10 Finally,
the member continues to be obligated to
comply with Phlx Rule 1094 and the
Market Access Rule. The Sponsoring
Member Organiztion is responsible for
any and all actions taken by such
Sponsored Participant and any person
acting on behalf of or in the name of
such Sponsored Participant.
Phlx Rule 1094 requires that the
Sponsored Participant and the
Sponsored Member Organization
8 See
Phlx Rule 960.2.
Rule 911, entitled ‘‘Member and Member
Organization Participation’’ permits the Exchange
to impose upon any member or member
organization such temporary restrictions upon the
automated entry or updating of orders or quotes/
orders as the Exchange may determine to be
necessary to protect the integrity of Exchange’s
systems.
10 See Phlx Rule 1094(b)(ii)(G).
9 Phlx
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maintain a Customer Agreement to
ensure compliance with the Exchange’s
Rules and obligations related to
security, among other things.11 Phlx
Rule 1094 requires that the Customer
Agreement specify that the Sponsored
Participant shall maintain, keep current
and provide to the Sponsoring Member
a list of individuals authorized to obtain
access to the Exchange on behalf of the
Sponsored Participant and provide
appropriate training. In addition,
pursuant to the Customer Agreement
provisions, the Sponsored Participant is
required to take reasonable security
precautions to prevent unauthorized use
or access to the Exchange, including
unauthorized entry of information into
the Exchange, or the information and
data made available therein. Finally, the
Customer Agreement must provide that
the Sponsored Participant is responsible
for any and all orders, trades and other
messages and instructions entered,
transmitted or received under
identifiers, passwords and security
codes of authorized individuals, and for
the trading and other consequences
thereof, including granting
unauthorized access to the Exchange.
The contents and the requirement for a
Customer Agreement are unchanged.
Pursuant to Phlx Rule 1094 the
Sponsoring Member Organization must
provide an Addendum to the Exchange.
The Exchange believes that the
Addendum provided to the Exchange by
the Sponsoring Member Organization is
also unnecessarily burdensome. The
Addendum notifies the Exchange of the
relationship between the Sponsoring
Member Organization and the
Sponsored Participant. However, as
noted above, the Exchange’s regulatory
group may request information about a
particular customer relationship as it
deems necessary.12 Further, the
Exchange is made aware of the existence
of ports when the Sponsoring Member
Organization requests connectivity to
the Exchange and the Members are
responsible for all trading activity by its
Sponsored Participant. In addition, the
Exchange, through its Regulatory
Services Agreement with the Financial
Industry Regulatory Authority (FINRA),
reviews for member compliance with
Phlx Rule 1094 and the Market Access
Rule. The Exchange has the ability to
remove access to the port 13 at any time
if the activity of the Sponsored
Participant would warrant such
removal.
In light of the foregoing, the
requirement to complete and submit an
11 See
Phlx Rule 1094(b)(ii)(B).
Phlx Rule 960.2.
13 See note 9.
12 See
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Exchange Agreement and Addendum
with the Phlx Membership Department
is viewed as unnecessarily burdensome
by members, who must update their
customer relationships internally and
provides such information upon
Exchange request.
PSX Rules
The Exchange proposes to remove
PSX Rule 3211, entitled ‘‘Application of
Other Rules of the Exchange,’’ because
Phlx Rule 1094 will be applicable to
market participants trading on PSX. The
Exchange is adding Phlx Rule 1094 to
the list of Phlx Rules for which PSX are
responsible for compliance. Finally, the
Exchange is removing the definitions of
Sponsored Participant and Sponsoring
Member Organization in Rule 1, which
relate to PSX Rules.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 14 in general, and furthers the
objectives of Section 6(b)(5) of the Act 15
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest, by
enhancing the risk protections available
to Exchange members.
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Defining Sponsored Access
Adding a definition of Sponsored
Access will assist market participants to
understand the type of arrangements
that are subject to Phlx Rule 1094 and
such clarity will serve to promote just
and equitable principles of trade.
Members have indicated, and the
Exchange believes, that adding the
Sponsored Access definition will
provide members with additional
guidance with respect to Phlx Rule
1094.
Defining Customer Agreement
Defining the agreement that
Sponsored Participants must enter into
and maintain with one or more
Sponsoring Member Organizations to
establish proper relationship(s) and
account(s) through which the Sponsored
Participant may trade on the Exchange,
as a ‘‘Customer Agreement’’ will also
serve to provide members with clarity
on the agreement that the Exchange will
continue to require and the obligations
that are contained within the Customer
Agreement. This amendment is nonsubstantive.
14 15
15 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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Market Access Rule
Members continue to be required to
comply with Phlx Rule 1094 and the
Market Access Rule. The Exchange
believes that specifically enumerating
the member’s responsibility to comply
with the Market Access Rule will
provide member’s with additional
guidance concerning the application of
the Rule. This change is non-substantive
as members are currently responsible to
comply with the Market Access Rule.
Elimination of Certain Contract
Requirements
Removing the requirement to submit
and complete an Exchange Agreement,
Access Agreement and Addendum will
remove impediments to and perfect the
mechanism of a free and open market by
removing a burdensome and timeconsuming requirement for members.
While elimination of the Exchange
Agreement requirement will also
eliminate the Exchange’s contractual
privity with the Sponsored Participant,
he Exchange notes that any potential
concerns to the loss of privity are
mitigated by the Exchange’s ability to
restrict the Sponsored Participant’s
access to a port 16 at any time it is
warranted by the Sponsored
Participant’s trading activity. Also,
members have indicated that customer
relationships must be frequently
updated and it is unnecessarily
burdensome to continuously update the
Exchange with this information that is
available upon request. Connectivity to
the Exchange is authorized by the
Exchange and must be requested by a
member of the Exchange. Such
connection requires approval by the
Exchange, testing and other security
features as well as information sharing
with the Exchange by the member. In
addition, Phlx Rule 1064 delineates the
terms of the required contractual
relationship between the Sponsoring
Member Organization and the
Sponsored Participant in the Customer
Agreement, which remains in effect.
The Exchange believes that the
Addendum is unnecessary as
Sponsoring Member Organizations must
request connectivity to the Exchange as
well as enter into a Customer Agreement
with the Sponsored Participant. Finally,
as is the case with other Exchange
Rules, the Exchange examines for
compliance with Phlx Rule 1064 and
may request information about any
customer relationship which concerns
the Exchange.
The requirement to also complete and
submit an Exchange Agreement, Access
16 See
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Agreement and Addendum with our
Phlx Membership Department is viewed
as unnecessarily burdensome by
members, who must update their
customer relationships internally.
PSX Rules
The Exchange’s proposal to remove
PSX Rule 3211, entitled ‘‘Application of
Other Rules of the Exchange,’’ and add
Phlx Rule 1094 to the list of Phlx Rules
for which PSX are responsible for
compliance will continue to treat both
Phlx equities and options members in a
similar manner, pursuant to the same
rule. Eliminating the definitions of
Sponsored Participant and Sponsoring
Member Organization in Rule 1 will
avoid confusion.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act for the
reasons below.
Defining Sponsored Access
The addition of a definition for
Sponsored Access will assist market
participants to understand the type of
arrangement subject to Phlx Rule 1094
and such clarity will serve to promote
just and equitable principles of trade.
Defining Customer Agreement
Defining the agreement that
Sponsored Participants must enter into
and maintain with one or more
Sponsoring Member Organizations to
establish proper relationship(s) and
account(s) through which the Sponsored
Participant may trade on the Exchange,
as a ‘‘Customer Agreement’’ does not
create an undue burden on competition
as this amendment is non-substantive
and the Exchange believes that
providing guidance concerning the type
of arrangement subject to Phlx Rule
1094 will facilitate member compliance
and does not unduly burden
competition.
Market Access Rule
In addition, the Exchange believes
that specifically enumerating the
member’s obligation to comply with the
Market Access Rule does not create an
undue burden on competition, but
rather reinforces the application of the
Rule. This change is non-substantive as
members are currently responsible to
comply with the Market Access Rule.
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Elimination of Certain Contract
Requirements
Removing the requirement to
complete an Exchange Agreement,
Access Agreement and Addendum
under Phlx Rule 1094 does not create an
undue burden on competition. The
Exchange believes that this requirement
is unnecessarily burdensome as the
Exchange’s regulatory group may
request information about a particular
customer relationship as it deems
necessary.17 Further, the Exchange is
made aware of the existence of ports
when the Sponsoring Member
Organization requests connectivity to
the Exchange and the Members are
responsible for all trading activity by its
Sponsored Participant. In order to
obtain connectivity to the Exchange,
members are required to contact Phlx
Subscriber Services and request a
connection to the market. Such
connection requires approval by the
Exchange, testing and other security
features as well as information sharing
with the Exchange by the member. Only
members are permitted to request
connectivity to the Exchange. The
requirement to also complete and
submit an Exchange Agreement, Access
Agreement and Addendum with our
Phlx Membership Department is viewed
as unnecessarily burdensome by
members, who must update their
customer relationships internally.
Additionally, the Exchange examines
for compliance with Phlx Rule 960.2
and may request information about any
customer relationship which concerns
the Exchange.
The Sponsoring Member Organization
remains responsible for customer
activity conducted on the Exchange
through the Customer Agreement,
among other obligations. Additionally,
Sponsored Participants that obtain
access to the Exchange’s trading system
are required to take reasonable security
precautions and prevent unauthorized
use or access the Exchange, including
unauthorized entry of information to the
Exchange,18 pursuant to the Customer
Agreement. Further, the Sponsored
Participants is responsible to establish
adequate procedures and controls that
permit it to effectively monitor its
employees’, agents’ and customers’ use
and access to the Exchange for
compliance with the terms of this
agreement.19 In addition, the Exchange,
through its Regulatory Services
Agreement with FINRA conducts
reviews of members for compliance
17 See
Phlx Rule 960.2.
Phlx Rule 1094(b)(ii)(G).
19 See Phlx Rule 1094(b)(ii)(H).
18 See
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Jkt 238001
with Phlx Rule 1094 and the Market
Access Rule. The Exchange has the
ability to remove access to the port 20 at
any time if the activity of the Sponsored
Participant would warrant such
removal. Finally, Phlx Rule 1094 is
currently applicable to all Phlx
members that desire to sponsor access
for its customers and applies to trading
in all securities on the Exchange.
PSX Rules
The Exchange’s proposal to remove
PSX Rule 3211, entitled ‘‘Application of
Other Rules of the Exchange,’’ and add
Phlx Rule 1094 to the list of Phlx Rules
for which PSX are responsible for
compliance does not create an undue
burden on competition because both
Phlx equities and options members will
be obligated similarly to Rule 1094.
Eliminating the definitions of
Sponsored Participant and Sponsoring
Member Organization in Rule 1 does not
create an undue burden on competition
because it will avoid confusion.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 21 and
subparagraph (f)(6) of Rule 19b–4
thereunder.22
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
20 See
note 9.
U.S.C. 78s(b)(3)(a)(iii).
22 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
21 15
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
73023
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2015–93 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Phlx–2015–93. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (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
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Phlx–
2015–93 and should be submitted on or
before December 14, 2015.
E:\FR\FM\23NON1.SGM
23NON1
73024
Federal Register / Vol. 80, No. 225 / Monday, November 23, 2015 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–29707 Filed 11–20–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76459; File No. SR–BATS–
2015–97)
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 11.13,
Order Execution and Routing
November 17, 2015.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
9, 2015, BATS Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BATS’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. 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 the Substance
of the Proposed Rule Change
The Exchange filed a proposal to
amend Rule 11.13, Order Execution and
Routing, to adopt a new routing option
to be known as ALLB.
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
wgreen on DSK2VPTVN1PROD with NOTICES
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
23 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
1 15
VerDate Sep<11>2014
14:25 Nov 20, 2015
Jkt 238001
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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 11.13, Order Execution and
Routing, to adopt a new routing option
to be known as ALLB. As proposed,
ALLB would be a routing option under
which the order checks the System 5 for
available shares and is then sent to the
EDGX Exchange, Inc. (‘‘EDGX’’), BATS
Y-Exchange, Inc. (‘‘BYX’’), and the
EDGA Exchange, Inc. (‘‘EDGA’’
collectively with the Exchange, EDGX,
and BYX, the ‘‘BGM Affiliated
Exchanges’’). Specifically, an order
subject to the ALLB routing option
would execute first against contra-side
displayed and non-displayed liquidity
on the BATS Book 6 at the National Best
Bid or Offer (‘‘NBBO’’) or better. Any
remainder would then be routed to
EDGX, BYX, and/or EDGA in
accordance with the System routing
table.7 If shares remain unexecuted after
routing, they are posted to the BATS
Book, unless otherwise instructed by the
User.8 In such case, the User may
instruct the Exchange to cancel the
remaining shares. ALLB is designed to
comply with Rule 611 and all other
provisions of Regulation NMS.9
2. Statutory Basis
The Exchange believes that its
proposal is consistent with section 6(b)
of the Act 10 in general, and furthers the
objectives of section 6(b)(5) of the Act 11
5 The term ‘‘System’’ is defined as ‘‘the electronic
communications and trading facility designated by
the Board through which securities orders of Users
are consolidated for ranking, execution and, when
applicable, routing away.’’ See Exchange Rule
1.5(aa).
6 The term ‘‘BATS Book’’ is defined as ‘‘the
System’s electronic file of orders.’’ See Exchange
Rule 1.5(e).
7 The term ‘‘System routing table’’ refers to the
proprietary process for determining the specific
trading venues to which the System routes orders
and the order in which it routes them. See
Exchange Rule 11.13(b)(3).
8 The term ‘‘User’’ is defined as ‘‘any Member or
Sponsored Participant who is authorized to obtain
access to the System pursuant to Rule 11.3.’’ See
Exchange Rule 1.5(cc).
9 17 CFR 242.611.
10 15 U.S.C. 78f(b).
11 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
in particular, in that it is designed to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. The proposed rule
change promotes just and equitable
principles of trade because it would
provide Users with greater flexibility in
routing orders consistent with
Regulation NMS without developing
complicated order routing strategies on
their own. The Exchange believes that
the proposed routing option will also
accomplish those ends by providing
market participants with an additional
voluntary routing option that will
enable them to easily access liquidity
available on all of the national securities
exchanges operated by BGM Affiliated
Exchanges. The Exchange expects the
routing strategy will benefit firms that
do not employ routing or trading
strategies under which the firm itself
would rapidly access liquidity provided
on the multiple venues. ALLB would
not provide any advantage to Users
when routing to the EDGA, EDGX, or
BYX as compared to other methods of
routing or connectivity available to
Users by the Exchange.
Lastly, the Exchange also notes that
routing options enabling the routing of
orders between affiliated exchanges is
not unique and that the ALLB routing
option is similar to routing options
offered by other exchange groups that
permit routing between affiliates.
Specifically, the Nasdaq Stock Market
LLC (‘‘Nasdaq’’), the Nasdaq OMX BX
(‘‘BX’’), Nasdaq OMX PSX (‘‘PSX’’) offer
routing options that enable an order,
whether sent to Nasdaq, BX, or PSX, to
check the Nasdaq, BX, and PSX books
for liquidity before optionally posting to
the Nasdaq, BX, or PSX book.12 In
addition, the Exchange previously
offered a variation of a Destination
Specific Order 13 which routed to and
executed by its affiliate, BYX, known as
the B2B routing.14 Therefore, the
12 See Securities Exchange Act Release Nos.
63900 (February 14, 2011), 76 FR 9397 (February
17, 2011) (SR-Nasdaq-2011–026); 65470 (October 3,
2011), 76 FR 62489 (October 7, 2011) (SR–BX–
2011–048); and 65469 (October 3, 2011), 76 FR
62486 (October 7, 2011) (SR–Phlx–2011–108)
(Notices of Filing and Immediate Effectiveness to
adopt the CART, BCRT, and PCRT routing options
on Nasdaq, BX, and PSX respectively). See also
Nasdaq Rule 4758(a)(1)(A)(xi); BX Rule
4758(a)(1)(A)(vii); and PSX Rule 3315(a)(1)(A)(vii).
13 See Exchange Rule 11.13(b)(3)(E).
14 See Securities Exchange Act Release No. 63146
(October 21, 2010), 75 FR 66170 (October 27, 2010)
(SR–BATS–2010–030). The Exchange notes that
E:\FR\FM\23NON1.SGM
23NON1
]]>Agencies
[Federal Register Volume 80, Number 225 (Monday, November 23, 2015)]
[Notices]
[Pages 73019-73024]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-29707]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76452; File No. SR-Phlx-2015-93]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Sponsored Access
November 17, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 4, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
[[Page 73020]]
and III, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 1094, entitled ``Sponsored
Participants'' (1) define the term ``Sponsored Access'' and ``Customer
Agreement;'' (2) specify the requirements to comply with Rule 15c3-5
under the Securities Exchange Act of 1934 (``Market Access Rule''); (3)
remove the requirement that each Sponsored Participant and each
Sponsoring Member Organization must enter into certain agreements with
the Exchange; and (4) remove PSX Rule 3211 as well as certain
definitions.
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqomxphlx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the filing is to amend Rule 1094 entitled,
``Sponsored Participants'' to: (1) Define the term ``Sponsored
Access,'' and specifically stating that compliance with the Market
Access Rule is required, and defining ``Customer Agreement'' to refer
to the agreement that must be executed between the Sponsoring
Participant and the Sponsoring Member Organization; (2) specify the
requirements to comply with the Market Access Rule; (3) remove the
requirement that each Sponsored Participant and each Sponsoring Member
Organization must enter into certain agreements with the Exchange to
streamline its rule and remove unnecessarily burdensome notice
requirements to the Exchange; and (4) remove PSX Rule 3211, entitled
``Application of Other Rules of the Exchange,'' because Phlx Rule 1094
will be applicable to market participants trading on PSX, and remove
the definitions of Sponsored Participant and Sponsoring Member
Organization in Rule 1, which relate to PSX Rules.
Defining Sponsored Access
A Sponsored Participant may be a member or a non-member of the
Exchange, such as an institutional investor, that gains access to the
Exchange \3\ and trades under a Sponsoring Member Organization's
execution and clearing identity pursuant to sponsorship arrangements
currently set forth in Phlx Rule 1094. The Exchange is proposing to
define the term ``Sponsored Access'' to clarify the type of market
access arrangement that is subject to Phlx Rule 1094. The Exchange
proposes to amend Phlx Rule 1094(a) to add the following definition,
``Sponsored Access shall mean an arrangement whereby a member
organization permits its customers to enter orders into the Exchange's
trading system that bypass the member organization's trading system and
are routed directly to the Exchange, including routing through a
service bureau or other third party technology provider.'' This
definition was derived from the Commission's description of Sponsored
Access used in the release approving the Market Access Rule.\4\ The
Exchange believes that defining Sponsored Access in Phlx Rule 1094 will
provide market participants with greater clarity concerning Sponsored
Access and their obligations with respect to this type of access
arrangement.
---------------------------------------------------------------------------
\3\ For example, a broker-dealer may allow its customer--whether
an institution such as a hedge fund, mutual fund, bank or insurance
company, an individual, or another broker-dealer--to use the broker-
dealer's MPID, account or other mechanism or mnemonic used to
identify a market participant for the purposes of electronically
accessing the Exchange.
\4\ The Market Access Rule, among other things, requires broker-
dealers providing others with access to an exchange or alternative
trading system to establish, document, and maintain a system of risk
management controls and supervisory procedures reasonably designed
to manage the financial, regulatory, and other risks of providing
such access. See Securities Exchange Act Release No. 63241 (November
3, 2010), 75 FR 69792 (November 15, 2010).
---------------------------------------------------------------------------
Defining Customer Agreement
The Exchange proposes to amend Phlx Rule 1094(b)(i) to define the
agreement that Sponsored Participants must enter into and maintain with
one or more Sponsoring Member Organizations to establish proper
relationship(s) and account(s) through which the Sponsored Participant
may trade on the Exchange, as a ``Customer Agreement.''
Market Access Rule
Pursuant to Phlx Rule 1094, the Sponsoring Member Organization is
responsible for the activities of the Sponsored Participant. Sponsored
Participants are required to have procedures in place to comply with
Exchange rules, and the Sponsoring Member Organization takes
responsibility for the Sponsored Participant's activity on the
Exchange. Members may have multiple Sponsored Access relationships in
place at a given time. The Exchange's examination program assesses
compliance with Phlx Rule 1094, among other rules.\5\ The Exchange
proposes to specifically enumerate within Phlx Rule 1094 the member's
obligation to comply with the Market Access Rule, which members are
currently required to comply with respecting market access. The
Exchange believes that specifying the obligation to comply with the
Market Access Rule specifically will reinforce that Phlx Rule 1094
presupposes member compliance with the Market Access Rule.
---------------------------------------------------------------------------
\5\ The Exchange has a Regulatory Services Agreement with
Financial Industry Regulatory Authority (``FINRA'') to conduct
regulatory examinations, among other obligations.
---------------------------------------------------------------------------
Elimination of Certain Contract Requirements
At this time, the Exchange proposes to remove requirements to
submit certain forms to the Exchange. There are three forms that are
currently required by Phlx Rule 1094: (1) An agreement between the
Sponsored Participant and the Exchange (``Exchange Agreement''); (2) an
Access Agreement between the Sponsored Participant and its Sponsoring
Member Organization that is provided to the Exchange; and (3) a
Sponsored Participant Addendum to its Access Agrement (hereinafter
``addendum'') provided to the Exchange by the Sponsoring Member
Organization. Phlx Rule 1094 will continue to require that each
Sponsored Participants enter into a Customer Agreement with each
Sponsoring member to establish proper relationship(s) and account(s)
through which the Sponsored Participant may trade on the Exchange.
These Customer Agreement(s) must incorporate the Sponsorship Provisions
set forth in
[[Page 73021]]
paragraph (ii) in Phlx Rule 1094.\6\ The Customer Agreement remains
unaffected by this rule proposal. Also, the Exchange is proposing to
amend Phlx Rule 1094 to identify the aforementioned agreement as the
``Customer Agreement.''
---------------------------------------------------------------------------
\6\ The Customer Agreement is required to include, among other
language, all orders entered by the Sponsored Participants and any
person acting on behalf of or in the name of such Sponsored
Participant and any executions occurring as a result of such orders
are binding in all respects on the Sponsoring Member Organization
and, also, Sponsoring Member Organization is responsible for any and
all actions taken by such Sponsored Participant and any person
acting on behalf of or in the name of such Sponsored Participant.
---------------------------------------------------------------------------
Today, only members may request connectivity to the Exchange. A
member may obtain one or more ports for the purpose of providing
Sponsored Access. If separate ports are requested by a member for the
purpose of providing Sponsored Access, the member must request those
ports from the Exchange and the member is responsible for the Sponsored
Participant's activity on the Exchange. In all circumstances, the
Exchange will only permit members to request connectivity to the market
and the member is responsible for all customer orders submitted through
the member's port.
First, the Exchange believes that completing and submitting the
Exchange Agreement, Access Agreement and Addendum is unnecessarily
burdensome in light of the current structure in place at the Exchange.
Only members may request connectivity to the Exchange by contacting
Phlx Subscriber Services. Such connection by the member requires
approval by the Exchange for the purpose of testing as well as other
relevant information sharing with the Exchange by the member to obtain
a port. The Exchange is aware of the member responsible for each of its
ports, however the Exchange may not be aware of the member's Sponsored
Access arrangements due to varied ways that a member may utilize a
port. The Exchange believes the requirement to also complete and submit
an Exchange Agreement, Access Agreement and Addendum with our Phlx
Membership Department is viewed as unnecessarily burdensome by members
because of the multitude of relationships the member has with various
customers. Members have expressed to the Exchange that they have
multiple relationships with customers, which customer relationships
change over time.\7\ Members have indicated that the necessity to
continuously disclose the updated customer relationships to the
Exchange is burdensome and unnecessary as they remain responsible for
all activity conducted on the Exchange through a port assigned to the
member. Further such information is available to the Exchange upon
Exchange request from its regulatory group.\8\
---------------------------------------------------------------------------
\7\ For example, a broker-dealer's customers, which could
include hedge funds, institutional investors, individual investors,
and other broker-dealers.
\8\ See Phlx Rule 960.2.
---------------------------------------------------------------------------
Second, the Exchange believes that the Exchange Agreement between
the Sponsored Participant and the Exchange is also unnecessarily
burdensome. The requirement to provide this form was intended to give
the Exchange notification that such a relationship existed and to
ensure that the Sponsored Participant was informed of the Exchange's
Limited Liability Company Agreement, By-Laws, Rules and procedures. The
agreements also provided the Exchange with contractual privity, which
would no longer exist with the removal of the Exchange Agreement. The
Exchange does not believe the loss of privity with the Sponsored
Participant creates a concern as the Exchange has the ability to remove
access to the port \9\ at any time if the activity of the Sponsored
Participant warrants such removal. In addition, as discussed below, the
Sponsored Participant will be made aware of its obligations through the
Customer Agreement that it executed with the Sponsoring Member. As
noted above, the Exchange only permits its members to request
connectivity to the Exchange's System and members responsible for all
trades submitted through such ports. Pursuant to Phlx Rule 1094 the
trading activity of a Sponsored Participant must be monitored by the
Sponsoring Member Organization for compliance with the terms of the
Customer Agreement with the Sponsoring Participant.\10\ Finally, the
member continues to be obligated to comply with Phlx Rule 1094 and the
Market Access Rule. The Sponsoring Member Organiztion is responsible
for any and all actions taken by such Sponsored Participant and any
person acting on behalf of or in the name of such Sponsored
Participant.
---------------------------------------------------------------------------
\9\ Phlx Rule 911, entitled ``Member and Member Organization
Participation'' permits the Exchange to impose upon any member or
member organization such temporary restrictions upon the automated
entry or updating of orders or quotes/orders as the Exchange may
determine to be necessary to protect the integrity of Exchange's
systems.
\10\ See Phlx Rule 1094(b)(ii)(G).
---------------------------------------------------------------------------
Phlx Rule 1094 requires that the Sponsored Participant and the
Sponsored Member Organization maintain a Customer Agreement to ensure
compliance with the Exchange's Rules and obligations related to
security, among other things.\11\ Phlx Rule 1094 requires that the
Customer Agreement specify that the Sponsored Participant shall
maintain, keep current and provide to the Sponsoring Member a list of
individuals authorized to obtain access to the Exchange on behalf of
the Sponsored Participant and provide appropriate training. In
addition, pursuant to the Customer Agreement provisions, the Sponsored
Participant is required to take reasonable security precautions to
prevent unauthorized use or access to the Exchange, including
unauthorized entry of information into the Exchange, or the information
and data made available therein. Finally, the Customer Agreement must
provide that the Sponsored Participant is responsible for any and all
orders, trades and other messages and instructions entered, transmitted
or received under identifiers, passwords and security codes of
authorized individuals, and for the trading and other consequences
thereof, including granting unauthorized access to the Exchange. The
contents and the requirement for a Customer Agreement are unchanged.
---------------------------------------------------------------------------
\11\ See Phlx Rule 1094(b)(ii)(B).
---------------------------------------------------------------------------
Pursuant to Phlx Rule 1094 the Sponsoring Member Organization must
provide an Addendum to the Exchange. The Exchange believes that the
Addendum provided to the Exchange by the Sponsoring Member Organization
is also unnecessarily burdensome. The Addendum notifies the Exchange of
the relationship between the Sponsoring Member Organization and the
Sponsored Participant. However, as noted above, the Exchange's
regulatory group may request information about a particular customer
relationship as it deems necessary.\12\ Further, the Exchange is made
aware of the existence of ports when the Sponsoring Member Organization
requests connectivity to the Exchange and the Members are responsible
for all trading activity by its Sponsored Participant. In addition, the
Exchange, through its Regulatory Services Agreement with the Financial
Industry Regulatory Authority (FINRA), reviews for member compliance
with Phlx Rule 1094 and the Market Access Rule. The Exchange has the
ability to remove access to the port \13\ at any time if the activity
of the Sponsored Participant would warrant such removal.
---------------------------------------------------------------------------
\12\ See Phlx Rule 960.2.
\13\ See note 9.
---------------------------------------------------------------------------
In light of the foregoing, the requirement to complete and submit
an
[[Page 73022]]
Exchange Agreement and Addendum with the Phlx Membership Department is
viewed as unnecessarily burdensome by members, who must update their
customer relationships internally and provides such information upon
Exchange request.
PSX Rules
The Exchange proposes to remove PSX Rule 3211, entitled
``Application of Other Rules of the Exchange,'' because Phlx Rule 1094
will be applicable to market participants trading on PSX. The Exchange
is adding Phlx Rule 1094 to the list of Phlx Rules for which PSX are
responsible for compliance. Finally, the Exchange is removing the
definitions of Sponsored Participant and Sponsoring Member Organization
in Rule 1, which relate to PSX Rules.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \14\ in general, and furthers the objectives of Section
6(b)(5) of the Act \15\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest, by enhancing the risk protections available to Exchange
members.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Defining Sponsored Access
Adding a definition of Sponsored Access will assist market
participants to understand the type of arrangements that are subject to
Phlx Rule 1094 and such clarity will serve to promote just and
equitable principles of trade. Members have indicated, and the Exchange
believes, that adding the Sponsored Access definition will provide
members with additional guidance with respect to Phlx Rule 1094.
Defining Customer Agreement
Defining the agreement that Sponsored Participants must enter into
and maintain with one or more Sponsoring Member Organizations to
establish proper relationship(s) and account(s) through which the
Sponsored Participant may trade on the Exchange, as a ``Customer
Agreement'' will also serve to provide members with clarity on the
agreement that the Exchange will continue to require and the
obligations that are contained within the Customer Agreement. This
amendment is non-substantive.
Market Access Rule
Members continue to be required to comply with Phlx Rule 1094 and
the Market Access Rule. The Exchange believes that specifically
enumerating the member's responsibility to comply with the Market
Access Rule will provide member's with additional guidance concerning
the application of the Rule. This change is non-substantive as members
are currently responsible to comply with the Market Access Rule.
Elimination of Certain Contract Requirements
Removing the requirement to submit and complete an Exchange
Agreement, Access Agreement and Addendum will remove impediments to and
perfect the mechanism of a free and open market by removing a
burdensome and time-consuming requirement for members. While
elimination of the Exchange Agreement requirement will also eliminate
the Exchange's contractual privity with the Sponsored Participant, he
Exchange notes that any potential concerns to the loss of privity are
mitigated by the Exchange's ability to restrict the Sponsored
Participant's access to a port \16\ at any time it is warranted by the
Sponsored Participant's trading activity. Also, members have indicated
that customer relationships must be frequently updated and it is
unnecessarily burdensome to continuously update the Exchange with this
information that is available upon request. Connectivity to the
Exchange is authorized by the Exchange and must be requested by a
member of the Exchange. Such connection requires approval by the
Exchange, testing and other security features as well as information
sharing with the Exchange by the member. In addition, Phlx Rule 1064
delineates the terms of the required contractual relationship between
the Sponsoring Member Organization and the Sponsored Participant in the
Customer Agreement, which remains in effect. The Exchange believes that
the Addendum is unnecessary as Sponsoring Member Organizations must
request connectivity to the Exchange as well as enter into a Customer
Agreement with the Sponsored Participant. Finally, as is the case with
other Exchange Rules, the Exchange examines for compliance with Phlx
Rule 1064 and may request information about any customer relationship
which concerns the Exchange.
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\16\ See note 9.
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The requirement to also complete and submit an Exchange Agreement,
Access Agreement and Addendum with our Phlx Membership Department is
viewed as unnecessarily burdensome by members, who must update their
customer relationships internally.
PSX Rules
The Exchange's proposal to remove PSX Rule 3211, entitled
``Application of Other Rules of the Exchange,'' and add Phlx Rule 1094
to the list of Phlx Rules for which PSX are responsible for compliance
will continue to treat both Phlx equities and options members in a
similar manner, pursuant to the same rule. Eliminating the definitions
of Sponsored Participant and Sponsoring Member Organization in Rule 1
will avoid confusion.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act for the reasons below.
Defining Sponsored Access
The addition of a definition for Sponsored Access will assist
market participants to understand the type of arrangement subject to
Phlx Rule 1094 and such clarity will serve to promote just and
equitable principles of trade.
Defining Customer Agreement
Defining the agreement that Sponsored Participants must enter into
and maintain with one or more Sponsoring Member Organizations to
establish proper relationship(s) and account(s) through which the
Sponsored Participant may trade on the Exchange, as a ``Customer
Agreement'' does not create an undue burden on competition as this
amendment is non-substantive and the Exchange believes that providing
guidance concerning the type of arrangement subject to Phlx Rule 1094
will facilitate member compliance and does not unduly burden
competition.
Market Access Rule
In addition, the Exchange believes that specifically enumerating
the member's obligation to comply with the Market Access Rule does not
create an undue burden on competition, but rather reinforces the
application of the Rule. This change is non-substantive as members are
currently responsible to comply with the Market Access Rule.
[[Page 73023]]
Elimination of Certain Contract Requirements
Removing the requirement to complete an Exchange Agreement, Access
Agreement and Addendum under Phlx Rule 1094 does not create an undue
burden on competition. The Exchange believes that this requirement is
unnecessarily burdensome as the Exchange's regulatory group may request
information about a particular customer relationship as it deems
necessary.\17\ Further, the Exchange is made aware of the existence of
ports when the Sponsoring Member Organization requests connectivity to
the Exchange and the Members are responsible for all trading activity
by its Sponsored Participant. In order to obtain connectivity to the
Exchange, members are required to contact Phlx Subscriber Services and
request a connection to the market. Such connection requires approval
by the Exchange, testing and other security features as well as
information sharing with the Exchange by the member. Only members are
permitted to request connectivity to the Exchange. The requirement to
also complete and submit an Exchange Agreement, Access Agreement and
Addendum with our Phlx Membership Department is viewed as unnecessarily
burdensome by members, who must update their customer relationships
internally. Additionally, the Exchange examines for compliance with
Phlx Rule 960.2 and may request information about any customer
relationship which concerns the Exchange.
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\17\ See Phlx Rule 960.2.
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The Sponsoring Member Organization remains responsible for customer
activity conducted on the Exchange through the Customer Agreement,
among other obligations. Additionally, Sponsored Participants that
obtain access to the Exchange's trading system are required to take
reasonable security precautions and prevent unauthorized use or access
the Exchange, including unauthorized entry of information to the
Exchange,\18\ pursuant to the Customer Agreement. Further, the
Sponsored Participants is responsible to establish adequate procedures
and controls that permit it to effectively monitor its employees',
agents' and customers' use and access to the Exchange for compliance
with the terms of this agreement.\19\ In addition, the Exchange,
through its Regulatory Services Agreement with FINRA conducts reviews
of members for compliance with Phlx Rule 1094 and the Market Access
Rule. The Exchange has the ability to remove access to the port \20\ at
any time if the activity of the Sponsored Participant would warrant
such removal. Finally, Phlx Rule 1094 is currently applicable to all
Phlx members that desire to sponsor access for its customers and
applies to trading in all securities on the Exchange.
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\18\ See Phlx Rule 1094(b)(ii)(G).
\19\ See Phlx Rule 1094(b)(ii)(H).
\20\ See note 9.
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PSX Rules
The Exchange's proposal to remove PSX Rule 3211, entitled
``Application of Other Rules of the Exchange,'' and add Phlx Rule 1094
to the list of Phlx Rules for which PSX are responsible for compliance
does not create an undue burden on competition because both Phlx
equities and options members will be obligated similarly to Rule 1094.
Eliminating the definitions of Sponsored Participant and Sponsoring
Member Organization in Rule 1 does not create an undue burden on
competition because it will avoid confusion.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \21\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\22\
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\21\ 15 U.S.C. 78s(b)(3)(a)(iii).
\22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-Phlx-2015-93 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2015-93. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (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
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2015-93 and should be
submitted on or before December 14, 2015.
[[Page 73024]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-29707 Filed 11-20-15; 8:45 am]
BILLING CODE 8011-01-P
