Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rules 501, 507, 508, 510, and 511 of the Exchange, 11967-11971 [2017-03729]

Download as PDF Federal Register / Vol. 82, No. 37 / Monday, February 27, 2017 / Notices experience that competing exchanges will move to adopt similar functionality. Thus, the Exchange believes that this type of competition amongst exchanges is beneficial to the market place as a whole as it can result in enhanced processes, functionality, and technologies. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be 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: mstockstill on DSK3G9T082PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2017–17 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2017–17. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements VerDate Sep<11>2014 20:23 Feb 24, 2017 Jkt 241001 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– NYSEArca–2017–17 and should be submitted on or before March 20, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–03727 Filed 2–24–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80074; File No. SR–Phlx– 2016–105] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rules 501, 507, 508, 510, and 511 of the Exchange February 21, 2017. I. Introduction On December 21, 2016, NASDAQ 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 amend Rule 501 (Specialist Appointment), Rule 507 (Application for Approval as an SQT, RSQT, or RSQTO and Assignment in Options), Rule 508 (Transfer Application), Rule 30 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 11967 510 (SQT and RSQT Performance Evaluation), and Rule 511 (Specialist Allocation and Performance Evaluation).3 The proposed rule change was published for comment in the Federal Register on January 9, 2017.4 On February 15, 2017, the Exchange filed Amendment No. 1 to the proposed rule change, which superseded the original filing in its entirety.5 The Commission received no comments on the proposed rule change. The Commission is publishing this notice to solicit comment on Amendment No. 1 to the proposed rule change from interested persons, and is approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. II. Description of the Proposed Rule Change, as Modified by Amendment No. 1 The Exchange proposes to amend certain of its Series 500 Rules concerning the treatment of Specialists,6 SQTs,7 and RSQTs.8 3 See infra notes 6–8 for definitions of Specialist, SQT, RSQT, and RSQTO. 4 See Securities Exchange Act Release No. 79724 (January 3, 2017), 82 FR 2418 (‘‘Notice’’). 5 In Amendment No. 1, the Exchange: (1) Specified that members of the panel that may be appointed by the Board of Directors to consider certain appeals may not have been involved at all in the decision appealed from (rather than not being materially involved) and must otherwise have no conflict of interest; and (2) clarified that when selecting members for such panel, the Board of Directors shall choose individuals whose background, experience, and training qualify them to consider and make determinations regarding the subject matter to be presented to the panel (rather than considering these factors to the extent practicable). To promote transparency of its proposed amendment, when Phlx filed Amendment No. 1 with the Commission, it also submitted Amendment No. 1 as a comment letter to the file, which the Commission posted on its Web site and placed in the public comment file for SR–Phlx– 2016–105 (available at https://www.sec.gov/ comments/sr-phlx-2016-105/phlx2016105-1589879132169.pdf). The Exchange also posted a copy of its Amendment No. 1 on its Web site (http:// nasdaqphlx.cchwallstreet.com/NASDAQPHLX/pdf/ phlx-filings/2016/SR-Phlx-2016-105_Amendment_ 1.pdf) when it filed Amendment No. 1 with the Commission. 6 A ‘‘Specialist’’ is an Exchange member who is registered as an options specialist pursuant to Rule 1020(a). A ‘‘Remote Specialist’’ is an options specialist that does not have a physical presence on an Exchange floor. See Rule 1020(a)(i) and (ii). 7 An ‘‘ROT’’ is a regular member of the Exchange located on the trading floor who has received permission from the Exchange to trade in options for his own account. See Rule 1014(b)(i). A ‘‘Streaming Quote Trader’’ or ‘‘SQT’’ is an ROT who has received permission from the Exchange to generate and submit option quotations electronically in options to which such SQT is assigned. See Rule 1014(b)(ii)(A). 8 A ‘‘Remote Streaming Quote Trader’’ or ‘‘RSQT’’ is an ROT that is a member affiliated with a ‘‘Remote Streaming Quote Trader Organization’’ or ‘‘RSQTO’’ with no physical trading floor presence Continued E:\FR\FM\27FEN1.SGM 27FEN1 11968 Federal Register / Vol. 82, No. 37 / Monday, February 27, 2017 / Notices A. Back-Up Specialist Unit The Exchange proposes to amend Rule 501 to remove the concept of a back-up specialist unit.9 Currently, an initial application to become a specialist unit must include, among other things, information about the proposed specialist unit’s back-up arrangements, to include a back-up specialist unit and a substitute specialist unit. The back-up specialist unit provides staffing when necessary and is not associated with the specialist unit. The substitute specialist unit, which may be the same as the back-up specialist unit, serves as a substitute in the event that the specialist unit is unable to perform the duties of a Specialist.10 The Exchange believes that the function of providing back-up staffing when needed from one specialist unit on the floor to another is no longer feasible because multiple specialist units are no longer present on the floor.11 The Exchange notes that the other initial application requirements in Rule 501 will remain unchanged.12 mstockstill on DSK3G9T082PROD with NOTICES B. Approval of SQT and RSQT Applications The Exchange proposes to amend Rule 507(a) to replace the role of the Board of Directors (‘‘Board’’) with Exchange staff with respect to deferring or limiting the approval of SQT and RSQT applications.13 Currently, the Board may defer, for a period to be determined in the Board’s discretion, approval of qualifying applications for SQT or RSQT status pending any action required to address the issue of concern to the Board based on system constraints, capacity restrictions, or other factors relevant to the maintenance of a fair and orderly market. Further, the Board may not defer a determination of the approval of the application of any SQT or RSQT applicant, or place any limitations on access to the Exchange’s electronic quoting and trading system on any SQT or RSQT applicant, unless the basis for who has received permission from the Exchange to generate and submit option quotations electronically in options to which such RSQT has been assigned. See Rule 1014(b)(ii)(B). See also Rule 507(a). 9 Specifically, the Exchange proposes to remove references to back-up specialist units in Rule 501(b) and (f)(ii), and delete a provision in Rule 501, Commentary .01, concerning treatment under Rule 748(b), which relates to designation of supervisors by member organizations of individuals employed by the back-up specialist unit. See proposed Rule 501(b), (f)(ii), and Commentary .01. 10 See Rule 501(b). 11 See Notice, supra, note 4, at 2419 n.10. 12 See id. at 2419 (citing Rule 501(a) and (b)). 13 See proposed Rule 507(a) (replacing references to the ‘‘Board’’ with ‘‘Exchange’’). VerDate Sep<11>2014 20:23 Feb 24, 2017 Jkt 241001 such limitations or deferral have been objectively determined by the Board, subject to Commission approval or effectiveness pursuant to a rule change filing under Section 19(b) of the Act.14 The Exchange proposes to have Exchange staff perform this role of deferring or limiting approval of SQT and RSQT applications, subject to the rule’s existing restrictions.15 The Exchange believes that this change will help with the administration and application of Rule 507.16 C. Good Standing Requirement for Specialists, SQTs, and RSQTs The Exchange proposes to revise Rule 510 to implement a good standing requirement for Specialists, SQTs, and RSQTs.17 Currently, Rule 510 requires the Exchange to periodically conduct performance evaluations of member organizations that have SQTs and RSQTs to determine whether they have fulfilled specified performance standards. Rule 510 includes procedures the Exchange will follow if an SQT or RSQT fails to meet minimum performance standards and appeal rights.18 Similarly, Rule 511 requires the Exchange to at least annually, and as frequently as monthly, conduct evaluations of Specialists to determine whether they have fulfilled specified performance standards. Rule 511 contains procedures for Specialists that fail to meet performance standards, including appeal rights. Rule 511 also contains provisions concerning the allocation of new options classes and transfers or reallocations of existing options classes, which can be based on the results of performance evaluations, including evaluations conducted upon special circumstances.19 The Exchange proposes to delete existing Rules 510 and 511 in their entirety and replace them with a new Rule 510 that will apply to Specialists, SQTs, and RSQTs and include good standing requirements and procedures if the participants fail to meet such requirements, including appeal rights.20 Under the proposal, to remain in good standing as a Specialist, SQT, or RSQT, Rule 507(a). Exchange explains that its Membership department, which currently reviews membership applications for equities and options members of the Exchange, would review applications for SQTs and RSQTs. See Notice, supra note 4, at 2419 n.12. 16 See id. at 2419. 17 See proposed Rule 510. 18 See Rule 510. 19 See Rule 511. 20 See proposed Rule 510. Consistent with this change, the proposal would conform the title of this rule. See id. Additionally, the proposal would reserve Rule 511. See proposed Rule 511. the Specialist, SQT, or RSQT would be required to: • Continue to meet the requirements established in Commission Rule 15c3– 1(a)(6)(i),21 and the requirements set forth in the Series 500 Rules in the Rules of the Exchange; • continue to satisfy the Specialist, SQT, or RSQT qualification and market making requirements specified by the Exchange, as amended from time to time; • comply with the Rules of the Exchange and the Options Rules as well as the rules of The Options Clearing Corporation and the rules of the Federal Reserve Board; and • pay on a timely basis such member, transaction, and other fees as the Exchange shall prescribe.22 The Exchange believes that in light of the proposed continuous and extensive good standing requirements and other rule requirements, the periodic evaluations currently applicable to Specialists, SQTs, and RSQTs are no longer needed.23 The Exchange represents that it will monitor compliance with good standing requirements across the Exchange.24 The proposal would also provide that the good standing of a Specialist, SQT, or RSQT may be suspended, terminated, or otherwise withdrawn if any of the conditions for approval cease to be maintained or the Specialist, SQT, or RSQT violates any of its agreements with the Exchange or any of the provisions of the Rules of the Exchange or of the Options Rules. The Exchange would be required to provide written notice to a Specialist, SQT, or RSQT of a contemplated action regarding good standing. Additionally, a Specialist, SQT, or RSQT would be able to request, and the Exchange might hold, an informal meeting to discuss the alleged failure to remain in good standing and to explore possible appropriate remedies. Written notice of the date and time of the meeting would need to be given to the Specialist, SQT, or RSQT and no verbatim record would be kept. If the Exchange were to believe that there were no mitigating circumstances that would demonstrate substantial improvement of or reasonable 14 See 15 The PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 21 See 240 CFR 15c3–1(a)(6)(i) (net capital requirements for brokers or dealers). 22 See proposed Rule 510(a). 23 See Notice, supra note 4, at 2420 n.22. 24 See id. at 2422 n.36. The Exchange explains that, for example, membership, listing, and finance groups monitor applications, allocations, and compliance with fee requirements, and the surveillance group will continue to monitor compliance with Exchange rules and pursue disciplinary actions for rule violations, as necessary (e.g., for failure to comply with continuous twosided quoting requirements). See id. E:\FR\FM\27FEN1.SGM 27FEN1 Federal Register / Vol. 82, No. 37 / Monday, February 27, 2017 / Notices justification for the failure to meet good standing requirements, the Exchange could take appropriate action. Nothing in the informal meeting process would limit the Exchange from bringing disciplinary actions for violations of these rules.25 Finally, the Exchange notes that it will provide appeal rights from decisions concerning good standing, as described further below.26 With respect to Rule 511, the Exchange believes it is proper to delete this rule because Specialists will be covered by Rule 510, with respect to good standing requirements, and will also be covered by other rules of the Exchange.27 The Exchange explains that it adopted Rule 511, with a process for Specialist evaluations and allocations, several decades ago for the purpose of dealing with an extensive on-floor open outcry Specialist system that had multiple competing specialist units. The Exchange adds that the current system is mainly electronic and off-floor, and the remaining hybrid options floor does not have numerous competing Specialists.28 mstockstill on DSK3G9T082PROD with NOTICES D. Appeal Rights The Exchange proposes to amend Rule 507(e) to change the composition of the deliberative body that will hear an appeal to the Board, upon request by a member or member organization, from a decision of the Exchange pursuant to Rule 507, which concerns SQT, RSQT, and RSQTO applications and options assignments.29 Currently, an appeal from a decision pursuant to Rule 507 is heard by a special committee of the Board composed of three directors, at least one of whom must be independent.30 Under the proposal, such appeal would be heard by the full Board or a panel appointed by the Board composed of three members not involved in the Exchange decision appealed from and who otherwise have no conflict of interest (‘‘Board Panel’’). If the Board appointed a Board Panel, 25 See proposed Rule 510(b). The Exchange explains that, for example, it could pursue a disciplinary process against a member that commits an egregious market making violation evidenced by a pattern of repeated failure to make a two-sided market in assigned options. See Notice, supra note 4, at 2421 n. 32. 26 See Notice, supra note 4, at 2421. See also infra Section 0. 27 See Notice, supra note 4, at 2422. 28 See id. The Exchange states that there is currently one specialist unit operating on the options floor. See id. The Exchange believes that even if additional Specialists begin to conduct business on the options floor, Rule 511 was designed for a very different, competitive floor environment and will not be needed. See id. at 2422 n. 38. 29 See proposed Rule 507(e). 30 See Rule 507(e). VerDate Sep<11>2014 20:23 Feb 24, 2017 Jkt 241001 the Board would select three individuals to serve on the Board Panel, choosing individuals whose background, experience, and training qualify them to consider and make determinations regarding the subject matter to be presented to the Board Panel. Further, the Board Panel would consist of two members of the Exchange, or general partners or officers of member organizations, and one other person who would qualify as a public member as defined in Article I of the Exchange’s By-Laws,31 whom the Board considers to be qualified.32 The Exchange proposes to add Rule 510(c) to adopt parallel appeal rights for an appeal by a Specialist, SQT, or RSQT to the Board, upon request by a member or member organization interested therein, from a decision of the Exchange pursuant to Rule 510, which concerns good standing requirements.33 Currently, Rule 511(f) contains appeal procedures for decisions concerning performance evaluations of Specialists, which procedures are equivalent to those found in Rule 507(e), while Rule 510(d) provides a right of direct appeal to the Board from a decision concerning performance evaluations of SQTs and RSQTs.34 Under the proposal, a Specialist, SQT, or RSQT could request an appeal by filing a written notice of appeal with the Secretary of the Exchange within ten days after the decision being appealed has been rendered. The appeal would be heard by the Board or a Board Panel, which would be subject to the same composition requirements discussed above.35 The person requesting review would be permitted to submit a written statement to and appear before the Board or Board Panel. The Secretary of the Exchange would certify the record of the proceeding, if any, and the written decision, and would submit the 31 Article I of the Exchange’s By-Laws defines ‘‘public member’’ as ‘‘a member of any committee appointed by the Board of Directors who has no material business relationship with a broker or dealer, the Exchange, or its affiliates.’’ See By-Laws, Article I(hh). The Exchange notes that while at least one member of the current special committee must be an independent director, the Board Panel would require the inclusion of one person who would qualify as a public member, which requirement also provides some measure of independence. See Notice, supra note 4, at 2419 n. 14. 32 See proposed Rule 507(e). The proposal would make conforming changes to the remainder of Rule 507(e), which addresses process requirements for the appeal, to replace references to ‘‘special committee’’ with ‘‘Board or Board Panel.’’ The existing provision that there is no appeal to the Board from a decision of the special committee would be revised to apply to a decision of the Board Panel. See id. 33 See proposed Rule 510(c). 34 See Rules 507(e), 511(f). 35 See supra notes 31–32 and accompanying text. PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 11969 documents to the Board or Board Panel. The Board or Board Panel’s review of the action would be based solely on the record, the written decision, and any statement submitted by the person requesting the review. The Board or Board Panel would prepare and deliver to such person a written decision and reasons therefore. If the Board or Board Panel affirmed the action, the action would become effective ten days from the date of that decision. There would be no appeal to the Board from any decision of the Board Panel.36 The Exchange believes that the proposed appeal rights are appropriate because they would cover any decision of the Exchange regarding Rule 510 and any appeal would follow the proposed informal meeting process. The Exchange adds that the proposed process would serve as a secondary appeal to individuals not involved in making the initial decision and stated that it seeks to provide its members due process when seeking an appeal.37 E. Additional and Conforming Changes The Exchange proposes to amend Rule 508, concerning transfer applications. First, the proposal would remove a reference to leasing.38 The Exchange explains that leasing is no longer practiced on the Exchange and it therefore is deleting this obsolete term.39 Second, the proposal would remove a reference to Rule 511.40 The Exchange explains that Rule 511 would be deleted by the proposal 41 and Rule 508 will continue to indicate that failure to provide the exchange with prior notice of a transfer, in accordance with Rule 508, or failure to obtain Exchange approval of a transfer, permits the Exchange to recover the allocated securities and allocate them pursuant to Rule 506.42 Finally, the Exchange proposes to amend Rule 507(b)(iii)(C) to reflect the proposed changes to Rule 510 that would implement a good standing requirement.43 Currently, this provision provides that, when making a decision concerning an application for assignment in an option when there are more applicants for assignment in a particular option than there are 36 See proposed Rule 510(c). Notice, supra note 4, at 2421 n. 33. 38 See proposed Rule 508. 39 See Notice, supra note 4, at 2420. The Exchange deleted another reference to leasing in its rules on the same basis. See Securities Exchange Act Release No. 77121 (February 11, 2016), 81 FR 8308 (February 18, 2016) (SR–Phlx–2016–22). 40 See proposed Rule 508. 41 See supra notes 19–20 and accompanying text. 42 See Notice, supra note 4, at 2420 & n.21. 43 See proposed Rule 507(b)(iii)(C). 37 See E:\FR\FM\27FEN1.SGM 27FEN1 11970 Federal Register / Vol. 82, No. 37 / Monday, February 27, 2017 / Notices positions available, the Exchange shall consider the applicant’s prior performance as a Specialist, SQT, or RSQT based on evaluations conducted pursuant to Rule 510.44 The Exchange explains that in light of the proposed good standing requirement, as discussed above,45 it has proposed to update this provision to state that the Exchange can consider the applicant’s prior performance as a Specialist, SQT, or RSQT based on good standing pursuant to Rule 510.46 III. Discussion and Commission Findings mstockstill on DSK3G9T082PROD with NOTICES After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.47 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,48 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, 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. The Exchange represents that, because of the development of liquidityenhancing electronic market makers on the Exchange that make markets in the same options issues as Specialists and the diminution of the role that the Specialist plays in managing the order book on the Exchange, Specialists no longer need to have both a back-up specialist unit and a substitute specialist unit.49 The Commission notes that a substitute specialist unit will still be available if the specialist unit is unable to perform the duties of a Specialist and that the presence of SQTs and RSQTs, which have continuous quoting obligations, will serve as an additional source of liquidity for the Exchange if a 44 See Rule 507(b)(iii)(C). Other factors for consideration include the financial and technical resources available to the applicant and the applicant’s experience and expertise in market making or options trading. See Rule 507(b)(iii)(A), (B). 45 See supra notes 17–20 and 22 and accompanying text. 46 See Notice, supra note 4, at 2419. 47 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 48 15 U.S.C. 78f(b)(5). 49 See Notice, supra note 4, at 2418–19. VerDate Sep<11>2014 20:23 Feb 24, 2017 Jkt 241001 specialist unit on the floor experiences a staffing problem.50 The Commission notes that the proposal to require Exchange staff, rather than the Board, to make determinations to defer or limit an application of an SQT or RSQT is designed to facilitate the administration and application of Rule 507. The Commission also notes that any deferral or limitation would be objectively determined by the Exchange. The proposal would also require the Exchange to provide written notification to any SQT or RSQT applicant whose application is the subject of such limitation or deferral, describing the objective basis for such limitation or deferral. Further, an SQT or RSQT applicant would have the right to an appeal to the Board or a Board Panel from any such decision by Exchange staff pursuant to Rule 507(e).51 The Commission notes that the proposed good standing requirements are designed to evaluate compliance by Specialists, SQTs, and RSQTs with Exchange rules and the rules of the Commission and other regulators and are consistent with the rules of other options exchanges.52 The Exchange represents that its staff, including its surveillance group, will monitor compliance with such rules.53 The Commission notes that while Specialist allocation procedures are not included within proposed Rule 510, Specialists will continue to be subject to numerous existing rules, some of which address allocation of options.54 The Commission believes that the Exchange’s use of the Board or a Board Panel to hear appeals of Exchange decisions pursuant to Rules 507 and 510, as opposed to a special committee of the Board, would retain an opportunity for the SQT, RSQT, or Specialist to be heard on the matter before the Exchange takes remedial action. The Commission notes the requirements that members of the Board Panel will not be involved in the Exchange decision appealed from, have no conflicts of interest, and be considered by the Board to be qualified, and that one member will be a person who would qualify as a public member 50 The Commission notes that currently Remote Specialists are not required to meet the back-up specialist unit requirement. See Rule 501(f)(ii). See also Securities Exchange Act Release No. 63717 (January 14, 2011), 76 FR 4141 (January 24, 2011) (SR–Phlx–2010–145). 51 See Notice, supra note 4, at 2419. See also supra Section II.D. 52 See BX Options Rules, Chapter VII, Section 4; Nasdaq Options Rules, Chapter VII, Section 4. 53 See supra note 24 and accompanying text. 54 See proposed Rule 508; Rules 506, 513. See also Rules 501, 1014, 1022. PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 as defined in Article I of the By-Laws. The revised appeal procedures for decisions pursuant to Rule 510 concerning SQTs and RSQTs mirror procedures already in place in other contexts. Finally, the Commission believes that the proposal’s minor, conforming revisions to Rules 507 and 508 are consistent with the Act. IV. Solicitation of Comments on Amendment No. 1 Interested persons are invited to submit written data, views, and arguments concerning whether Amendment No. 1 to the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– Phlx–2016–105 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–Phlx–2016–105. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make E:\FR\FM\27FEN1.SGM 27FEN1 Federal Register / Vol. 82, No. 37 / Monday, February 27, 2017 / Notices available publicly. All submissions should refer to File Number SR–Phlx– 2016–105, and should be submitted on or before March 20, 2017. V. Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 1, prior to the thirtieth day after the date of publication of the notice of Amendment No. 1 in the Federal Register. As described above, in Amendment No. 1, Phlx updated its proposal to reflect: (1) That members of the Board Panel may not have been involved at all in the decision appealed from and must otherwise have no conflict of interest; and (2) that the Board shall choose individuals whose background, experience, and training qualify them to consider and make determinations regarding the subject matter to be presented to the panel. The Commission believes that Amendment No. 1 clarifies the criteria for ensuring the independence of the Board Panel that could hear an appeal pursuant to Rules 507 and 510. Accordingly, for the reasons noted above, the Commission finds good cause for approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis, pursuant to Section 19(b)(2) of the Act.55 VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,56 that the proposed rule change (SR–Phlx–2016– 105), as modified by Amendment No. 1 thereto, be, and hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.57 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–03729 Filed 2–24–17; 8:45 am] mstockstill on DSK3G9T082PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80080; File No. SR–ISE– 2017–10] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees February 22, 2017. 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 February 10, 2017, the International Securities Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II, 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 Exchange’s Schedule of Fees, as described in further detail below. The text of the proposed rule change is available on the Exchange’s Web site at www.ise.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 proposed rule change is to amend the Exchange’s Schedule of Fees to increase, for all 55 15 U.S.C. 78s(b)(2). 56 Id. 57 17 1 15 CFR 200.30–3(a)(12). VerDate Sep<11>2014 20:23 Feb 24, 2017 2 17 Jkt 241001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00081 Fmt 4703 Sfmt 4703 11971 symbols other than FX Option Symbols,3 the fees applicable to Professional Customers 4 for the initiating or contra side of Qualified Contingent Cross (‘‘QCC’’) orders or orders executed in the Solicited Order Mechanism (‘‘Solicitation’’ orders). Accordingly, the proposed rule change will also increase the rebates that the Exchange currently provides to members using QCC and/or other solicited crossing orders, including solicited orders executed in the Solicitation, Facilitation, and Price Improvement Mechanisms (‘‘solicited crossing orders’’), in each case between Professional Customers or between a Professional Customer and a Priority Customer.5 Currently, the Exchange does not charge a fee to Professional Customers for QCC and Solicitation orders.6 As such, Professional Customer volume in QCC and Solicitation orders are rebated in accordance with the standard ‘‘Customer to Customer’’ rebate tiers, which are lower than the rebates provided for QCC and other solicited crossing orders to all other market participants than Professional and Priority Customers, as further described below. The Exchange presently offers members rebates in QCC and other solicited crossing orders. These rebates are provided for each originating contract side of a crossing order, based on a member’s volume in the crossing mechanisms during a given month. The applicable rebates will be applied on QCC and other solicited crossing order traded contracts once the specified volume threshold is met. Members receive the Non-‘‘Customer to Customer’’ Rebate for all QCC and/or other solicited crossing orders except for QCC and other solicited crossing orders between two Priority and/or Professional Customers. QCC and other solicited crossing orders between two Priority and/or Professional Customers receive the ‘‘Customer to Customer’’ Rebate or ‘‘Customer to Customer’’ 3 ‘‘FX Option Symbols’’ are options overlying AUM, GBP, EUU and NDO. 4 A ‘‘Professional Customer’’ is a person or entity that is not a broker/dealer and is not a Priority Customer. 5 A ‘‘Priority Customer’’ is a person or entity that: (i) is not a broker or dealer in securities; and (ii) does not place more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s), as defined in ISE Rule 100(a)(37A). 6 See Securities Exchange Act Release No. 79811 (January 17, 2017), 82 FR 8244 (January 24, 2017) (SR–ISE–2017–01) (eliminating the Professional Customer fee for the initiating or contra side of a QCC or Solicitation order) (the ‘‘January Fee Filing’’). E:\FR\FM\27FEN1.SGM 27FEN1

Agencies

[Federal Register Volume 82, Number 37 (Monday, February 27, 2017)]
[Notices]
[Pages 11967-11971]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03729]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80074; File No. SR-Phlx-2016-105]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of Proposed 
Rule Change, as Modified by Amendment No. 1, To Amend Rules 501, 507, 
508, 510, and 511 of the Exchange

February 21, 2017.

I. Introduction

    On December 21, 2016, NASDAQ 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 amend Rule 501 (Specialist Appointment), Rule 
507 (Application for Approval as an SQT, RSQT, or RSQTO and Assignment 
in Options), Rule 508 (Transfer Application), Rule 510 (SQT and RSQT 
Performance Evaluation), and Rule 511 (Specialist Allocation and 
Performance Evaluation).\3\ The proposed rule change was published for 
comment in the Federal Register on January 9, 2017.\4\ On February 15, 
2017, the Exchange filed Amendment No. 1 to the proposed rule change, 
which superseded the original filing in its entirety.\5\ The Commission 
received no comments on the proposed rule change. The Commission is 
publishing this notice to solicit comment on Amendment No. 1 to the 
proposed rule change from interested persons, and is approving the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See infra notes 6-8 for definitions of Specialist, SQT, 
RSQT, and RSQTO.
    \4\ See Securities Exchange Act Release No. 79724 (January 3, 
2017), 82 FR 2418 (``Notice'').
    \5\ In Amendment No. 1, the Exchange: (1) Specified that members 
of the panel that may be appointed by the Board of Directors to 
consider certain appeals may not have been involved at all in the 
decision appealed from (rather than not being materially involved) 
and must otherwise have no conflict of interest; and (2) clarified 
that when selecting members for such panel, the Board of Directors 
shall choose individuals whose background, experience, and training 
qualify them to consider and make determinations regarding the 
subject matter to be presented to the panel (rather than considering 
these factors to the extent practicable). To promote transparency of 
its proposed amendment, when Phlx filed Amendment No. 1 with the 
Commission, it also submitted Amendment No. 1 as a comment letter to 
the file, which the Commission posted on its Web site and placed in 
the public comment file for SR-Phlx-2016-105 (available at https://www.sec.gov/comments/sr-phlx-2016-105/phlx2016105-1589879-132169.pdf). The Exchange also posted a copy of its Amendment No. 1 
on its Web site (http://nasdaqphlx.cchwallstreet.com/NASDAQPHLX/pdf/phlx-filings/2016/SR-Phlx-2016-105_Amendment_1.pdf) when it filed 
Amendment No. 1 with the Commission.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    The Exchange proposes to amend certain of its Series 500 Rules 
concerning the treatment of Specialists,\6\ SQTs,\7\ and RSQTs.\8\
---------------------------------------------------------------------------

    \6\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a). A ``Remote 
Specialist'' is an options specialist that does not have a physical 
presence on an Exchange floor. See Rule 1020(a)(i) and (ii).
    \7\ An ``ROT'' is a regular member of the Exchange located on 
the trading floor who has received permission from the Exchange to 
trade in options for his own account. See Rule 1014(b)(i). A 
``Streaming Quote Trader'' or ``SQT'' is an ROT who has received 
permission from the Exchange to generate and submit option 
quotations electronically in options to which such SQT is assigned. 
See Rule 1014(b)(ii)(A).
    \8\ A ``Remote Streaming Quote Trader'' or ``RSQT'' is an ROT 
that is a member affiliated with a ``Remote Streaming Quote Trader 
Organization'' or ``RSQTO'' with no physical trading floor presence 
who has received permission from the Exchange to generate and submit 
option quotations electronically in options to which such RSQT has 
been assigned. See Rule 1014(b)(ii)(B). See also Rule 507(a).

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[[Page 11968]]

A. Back-Up Specialist Unit

    The Exchange proposes to amend Rule 501 to remove the concept of a 
back-up specialist unit.\9\ Currently, an initial application to become 
a specialist unit must include, among other things, information about 
the proposed specialist unit's back-up arrangements, to include a back-
up specialist unit and a substitute specialist unit. The back-up 
specialist unit provides staffing when necessary and is not associated 
with the specialist unit. The substitute specialist unit, which may be 
the same as the back-up specialist unit, serves as a substitute in the 
event that the specialist unit is unable to perform the duties of a 
Specialist.\10\
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    \9\ Specifically, the Exchange proposes to remove references to 
back-up specialist units in Rule 501(b) and (f)(ii), and delete a 
provision in Rule 501, Commentary .01, concerning treatment under 
Rule 748(b), which relates to designation of supervisors by member 
organizations of individuals employed by the back-up specialist 
unit. See proposed Rule 501(b), (f)(ii), and Commentary .01.
    \10\ See Rule 501(b).
---------------------------------------------------------------------------

    The Exchange believes that the function of providing back-up 
staffing when needed from one specialist unit on the floor to another 
is no longer feasible because multiple specialist units are no longer 
present on the floor.\11\ The Exchange notes that the other initial 
application requirements in Rule 501 will remain unchanged.\12\
---------------------------------------------------------------------------

    \11\ See Notice, supra, note 4, at 2419 n.10.
    \12\ See id. at 2419 (citing Rule 501(a) and (b)).
---------------------------------------------------------------------------

B. Approval of SQT and RSQT Applications

    The Exchange proposes to amend Rule 507(a) to replace the role of 
the Board of Directors (``Board'') with Exchange staff with respect to 
deferring or limiting the approval of SQT and RSQT applications.\13\ 
Currently, the Board may defer, for a period to be determined in the 
Board's discretion, approval of qualifying applications for SQT or RSQT 
status pending any action required to address the issue of concern to 
the Board based on system constraints, capacity restrictions, or other 
factors relevant to the maintenance of a fair and orderly market. 
Further, the Board may not defer a determination of the approval of the 
application of any SQT or RSQT applicant, or place any limitations on 
access to the Exchange's electronic quoting and trading system on any 
SQT or RSQT applicant, unless the basis for such limitations or 
deferral have been objectively determined by the Board, subject to 
Commission approval or effectiveness pursuant to a rule change filing 
under Section 19(b) of the Act.\14\ The Exchange proposes to have 
Exchange staff perform this role of deferring or limiting approval of 
SQT and RSQT applications, subject to the rule's existing 
restrictions.\15\ The Exchange believes that this change will help with 
the administration and application of Rule 507.\16\
---------------------------------------------------------------------------

    \13\ See proposed Rule 507(a) (replacing references to the 
``Board'' with ``Exchange'').
    \14\ See Rule 507(a).
    \15\ The Exchange explains that its Membership department, which 
currently reviews membership applications for equities and options 
members of the Exchange, would review applications for SQTs and 
RSQTs. See Notice, supra note 4, at 2419 n.12.
    \16\ See id. at 2419.
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C. Good Standing Requirement for Specialists, SQTs, and RSQTs

    The Exchange proposes to revise Rule 510 to implement a good 
standing requirement for Specialists, SQTs, and RSQTs.\17\ Currently, 
Rule 510 requires the Exchange to periodically conduct performance 
evaluations of member organizations that have SQTs and RSQTs to 
determine whether they have fulfilled specified performance standards. 
Rule 510 includes procedures the Exchange will follow if an SQT or RSQT 
fails to meet minimum performance standards and appeal rights.\18\ 
Similarly, Rule 511 requires the Exchange to at least annually, and as 
frequently as monthly, conduct evaluations of Specialists to determine 
whether they have fulfilled specified performance standards. Rule 511 
contains procedures for Specialists that fail to meet performance 
standards, including appeal rights. Rule 511 also contains provisions 
concerning the allocation of new options classes and transfers or 
reallocations of existing options classes, which can be based on the 
results of performance evaluations, including evaluations conducted 
upon special circumstances.\19\ The Exchange proposes to delete 
existing Rules 510 and 511 in their entirety and replace them with a 
new Rule 510 that will apply to Specialists, SQTs, and RSQTs and 
include good standing requirements and procedures if the participants 
fail to meet such requirements, including appeal rights.\20\
---------------------------------------------------------------------------

    \17\ See proposed Rule 510.
    \18\ See Rule 510.
    \19\ See Rule 511.
    \20\ See proposed Rule 510. Consistent with this change, the 
proposal would conform the title of this rule. See id. Additionally, 
the proposal would reserve Rule 511. See proposed Rule 511.
---------------------------------------------------------------------------

    Under the proposal, to remain in good standing as a Specialist, 
SQT, or RSQT, the Specialist, SQT, or RSQT would be required to:
     Continue to meet the requirements established in 
Commission Rule 15c3-1(a)(6)(i),\21\ and the requirements set forth in 
the Series 500 Rules in the Rules of the Exchange;
---------------------------------------------------------------------------

    \21\ See 240 CFR 15c3-1(a)(6)(i) (net capital requirements for 
brokers or dealers).
---------------------------------------------------------------------------

     continue to satisfy the Specialist, SQT, or RSQT 
qualification and market making requirements specified by the Exchange, 
as amended from time to time;
     comply with the Rules of the Exchange and the Options 
Rules as well as the rules of The Options Clearing Corporation and the 
rules of the Federal Reserve Board; and
     pay on a timely basis such member, transaction, and other 
fees as the Exchange shall prescribe.\22\
---------------------------------------------------------------------------

    \22\ See proposed Rule 510(a).
---------------------------------------------------------------------------

    The Exchange believes that in light of the proposed continuous and 
extensive good standing requirements and other rule requirements, the 
periodic evaluations currently applicable to Specialists, SQTs, and 
RSQTs are no longer needed.\23\ The Exchange represents that it will 
monitor compliance with good standing requirements across the 
Exchange.\24\
---------------------------------------------------------------------------

    \23\ See Notice, supra note 4, at 2420 n.22.
    \24\ See id. at 2422 n.36. The Exchange explains that, for 
example, membership, listing, and finance groups monitor 
applications, allocations, and compliance with fee requirements, and 
the surveillance group will continue to monitor compliance with 
Exchange rules and pursue disciplinary actions for rule violations, 
as necessary (e.g., for failure to comply with continuous two-sided 
quoting requirements). See id.
---------------------------------------------------------------------------

    The proposal would also provide that the good standing of a 
Specialist, SQT, or RSQT may be suspended, terminated, or otherwise 
withdrawn if any of the conditions for approval cease to be maintained 
or the Specialist, SQT, or RSQT violates any of its agreements with the 
Exchange or any of the provisions of the Rules of the Exchange or of 
the Options Rules. The Exchange would be required to provide written 
notice to a Specialist, SQT, or RSQT of a contemplated action regarding 
good standing. Additionally, a Specialist, SQT, or RSQT would be able 
to request, and the Exchange might hold, an informal meeting to discuss 
the alleged failure to remain in good standing and to explore possible 
appropriate remedies. Written notice of the date and time of the 
meeting would need to be given to the Specialist, SQT, or RSQT and no 
verbatim record would be kept. If the Exchange were to believe that 
there were no mitigating circumstances that would demonstrate 
substantial improvement of or reasonable

[[Page 11969]]

justification for the failure to meet good standing requirements, the 
Exchange could take appropriate action. Nothing in the informal meeting 
process would limit the Exchange from bringing disciplinary actions for 
violations of these rules.\25\ Finally, the Exchange notes that it will 
provide appeal rights from decisions concerning good standing, as 
described further below.\26\
---------------------------------------------------------------------------

    \25\ See proposed Rule 510(b). The Exchange explains that, for 
example, it could pursue a disciplinary process against a member 
that commits an egregious market making violation evidenced by a 
pattern of repeated failure to make a two-sided market in assigned 
options. See Notice, supra note 4, at 2421 n. 32.
    \26\ See Notice, supra note 4, at 2421. See also infra Section 
0.
---------------------------------------------------------------------------

    With respect to Rule 511, the Exchange believes it is proper to 
delete this rule because Specialists will be covered by Rule 510, with 
respect to good standing requirements, and will also be covered by 
other rules of the Exchange.\27\ The Exchange explains that it adopted 
Rule 511, with a process for Specialist evaluations and allocations, 
several decades ago for the purpose of dealing with an extensive on-
floor open outcry Specialist system that had multiple competing 
specialist units. The Exchange adds that the current system is mainly 
electronic and off-floor, and the remaining hybrid options floor does 
not have numerous competing Specialists.\28\
---------------------------------------------------------------------------

    \27\ See Notice, supra note 4, at 2422.
    \28\ See id. The Exchange states that there is currently one 
specialist unit operating on the options floor. See id. The Exchange 
believes that even if additional Specialists begin to conduct 
business on the options floor, Rule 511 was designed for a very 
different, competitive floor environment and will not be needed. See 
id. at 2422 n. 38.
---------------------------------------------------------------------------

D. Appeal Rights

    The Exchange proposes to amend Rule 507(e) to change the 
composition of the deliberative body that will hear an appeal to the 
Board, upon request by a member or member organization, from a decision 
of the Exchange pursuant to Rule 507, which concerns SQT, RSQT, and 
RSQTO applications and options assignments.\29\ Currently, an appeal 
from a decision pursuant to Rule 507 is heard by a special committee of 
the Board composed of three directors, at least one of whom must be 
independent.\30\ Under the proposal, such appeal would be heard by the 
full Board or a panel appointed by the Board composed of three members 
not involved in the Exchange decision appealed from and who otherwise 
have no conflict of interest (``Board Panel''). If the Board appointed 
a Board Panel, the Board would select three individuals to serve on the 
Board Panel, choosing individuals whose background, experience, and 
training qualify them to consider and make determinations regarding the 
subject matter to be presented to the Board Panel. Further, the Board 
Panel would consist of two members of the Exchange, or general partners 
or officers of member organizations, and one other person who would 
qualify as a public member as defined in Article I of the Exchange's 
By-Laws,\31\ whom the Board considers to be qualified.\32\
---------------------------------------------------------------------------

    \29\ See proposed Rule 507(e).
    \30\ See Rule 507(e).
    \31\ Article I of the Exchange's By-Laws defines ``public 
member'' as ``a member of any committee appointed by the Board of 
Directors who has no material business relationship with a broker or 
dealer, the Exchange, or its affiliates.'' See By-Laws, Article 
I(hh). The Exchange notes that while at least one member of the 
current special committee must be an independent director, the Board 
Panel would require the inclusion of one person who would qualify as 
a public member, which requirement also provides some measure of 
independence. See Notice, supra note 4, at 2419 n. 14.
    \32\ See proposed Rule 507(e). The proposal would make 
conforming changes to the remainder of Rule 507(e), which addresses 
process requirements for the appeal, to replace references to 
``special committee'' with ``Board or Board Panel.'' The existing 
provision that there is no appeal to the Board from a decision of 
the special committee would be revised to apply to a decision of the 
Board Panel. See id.
---------------------------------------------------------------------------

    The Exchange proposes to add Rule 510(c) to adopt parallel appeal 
rights for an appeal by a Specialist, SQT, or RSQT to the Board, upon 
request by a member or member organization interested therein, from a 
decision of the Exchange pursuant to Rule 510, which concerns good 
standing requirements.\33\ Currently, Rule 511(f) contains appeal 
procedures for decisions concerning performance evaluations of 
Specialists, which procedures are equivalent to those found in Rule 
507(e), while Rule 510(d) provides a right of direct appeal to the 
Board from a decision concerning performance evaluations of SQTs and 
RSQTs.\34\
---------------------------------------------------------------------------

    \33\ See proposed Rule 510(c).
    \34\ See Rules 507(e), 511(f).
---------------------------------------------------------------------------

    Under the proposal, a Specialist, SQT, or RSQT could request an 
appeal by filing a written notice of appeal with the Secretary of the 
Exchange within ten days after the decision being appealed has been 
rendered. The appeal would be heard by the Board or a Board Panel, 
which would be subject to the same composition requirements discussed 
above.\35\ The person requesting review would be permitted to submit a 
written statement to and appear before the Board or Board Panel. The 
Secretary of the Exchange would certify the record of the proceeding, 
if any, and the written decision, and would submit the documents to the 
Board or Board Panel. The Board or Board Panel's review of the action 
would be based solely on the record, the written decision, and any 
statement submitted by the person requesting the review. The Board or 
Board Panel would prepare and deliver to such person a written decision 
and reasons therefore. If the Board or Board Panel affirmed the action, 
the action would become effective ten days from the date of that 
decision. There would be no appeal to the Board from any decision of 
the Board Panel.\36\
---------------------------------------------------------------------------

    \35\ See supra notes 31-32 and accompanying text.
    \36\ See proposed Rule 510(c).
---------------------------------------------------------------------------

    The Exchange believes that the proposed appeal rights are 
appropriate because they would cover any decision of the Exchange 
regarding Rule 510 and any appeal would follow the proposed informal 
meeting process. The Exchange adds that the proposed process would 
serve as a secondary appeal to individuals not involved in making the 
initial decision and stated that it seeks to provide its members due 
process when seeking an appeal.\37\
---------------------------------------------------------------------------

    \37\ See Notice, supra note 4, at 2421 n. 33.
---------------------------------------------------------------------------

E. Additional and Conforming Changes

    The Exchange proposes to amend Rule 508, concerning transfer 
applications. First, the proposal would remove a reference to 
leasing.\38\ The Exchange explains that leasing is no longer practiced 
on the Exchange and it therefore is deleting this obsolete term.\39\ 
Second, the proposal would remove a reference to Rule 511.\40\ The 
Exchange explains that Rule 511 would be deleted by the proposal \41\ 
and Rule 508 will continue to indicate that failure to provide the 
exchange with prior notice of a transfer, in accordance with Rule 508, 
or failure to obtain Exchange approval of a transfer, permits the 
Exchange to recover the allocated securities and allocate them pursuant 
to Rule 506.\42\
---------------------------------------------------------------------------

    \38\ See proposed Rule 508.
    \39\ See Notice, supra note 4, at 2420. The Exchange deleted 
another reference to leasing in its rules on the same basis. See 
Securities Exchange Act Release No. 77121 (February 11, 2016), 81 FR 
8308 (February 18, 2016) (SR-Phlx-2016-22).
    \40\ See proposed Rule 508.
    \41\ See supra notes 19-20 and accompanying text.
    \42\ See Notice, supra note 4, at 2420 & n.21.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to amend Rule 507(b)(iii)(C) to 
reflect the proposed changes to Rule 510 that would implement a good 
standing requirement.\43\ Currently, this provision provides that, when 
making a decision concerning an application for assignment in an option 
when there are more applicants for assignment in a particular option 
than there are

[[Page 11970]]

positions available, the Exchange shall consider the applicant's prior 
performance as a Specialist, SQT, or RSQT based on evaluations 
conducted pursuant to Rule 510.\44\ The Exchange explains that in light 
of the proposed good standing requirement, as discussed above,\45\ it 
has proposed to update this provision to state that the Exchange can 
consider the applicant's prior performance as a Specialist, SQT, or 
RSQT based on good standing pursuant to Rule 510.\46\
---------------------------------------------------------------------------

    \43\ See proposed Rule 507(b)(iii)(C).
    \44\ See Rule 507(b)(iii)(C). Other factors for consideration 
include the financial and technical resources available to the 
applicant and the applicant's experience and expertise in market 
making or options trading. See Rule 507(b)(iii)(A), (B).
    \45\ See supra notes 17-20 and 22 and accompanying text.
    \46\ See Notice, supra note 4, at 2419.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\47\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\48\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, 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.
---------------------------------------------------------------------------

    \47\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange represents that, because of the development of 
liquidity-enhancing electronic market makers on the Exchange that make 
markets in the same options issues as Specialists and the diminution of 
the role that the Specialist plays in managing the order book on the 
Exchange, Specialists no longer need to have both a back-up specialist 
unit and a substitute specialist unit.\49\ The Commission notes that a 
substitute specialist unit will still be available if the specialist 
unit is unable to perform the duties of a Specialist and that the 
presence of SQTs and RSQTs, which have continuous quoting obligations, 
will serve as an additional source of liquidity for the Exchange if a 
specialist unit on the floor experiences a staffing problem.\50\
---------------------------------------------------------------------------

    \49\ See Notice, supra note 4, at 2418-19.
    \50\ The Commission notes that currently Remote Specialists are 
not required to meet the back-up specialist unit requirement. See 
Rule 501(f)(ii). See also Securities Exchange Act Release No. 63717 
(January 14, 2011), 76 FR 4141 (January 24, 2011) (SR-Phlx-2010-
145).
---------------------------------------------------------------------------

    The Commission notes that the proposal to require Exchange staff, 
rather than the Board, to make determinations to defer or limit an 
application of an SQT or RSQT is designed to facilitate the 
administration and application of Rule 507. The Commission also notes 
that any deferral or limitation would be objectively determined by the 
Exchange. The proposal would also require the Exchange to provide 
written notification to any SQT or RSQT applicant whose application is 
the subject of such limitation or deferral, describing the objective 
basis for such limitation or deferral. Further, an SQT or RSQT 
applicant would have the right to an appeal to the Board or a Board 
Panel from any such decision by Exchange staff pursuant to Rule 
507(e).\51\
---------------------------------------------------------------------------

    \51\ See Notice, supra note 4, at 2419. See also supra Section 
II.D.
---------------------------------------------------------------------------

    The Commission notes that the proposed good standing requirements 
are designed to evaluate compliance by Specialists, SQTs, and RSQTs 
with Exchange rules and the rules of the Commission and other 
regulators and are consistent with the rules of other options 
exchanges.\52\ The Exchange represents that its staff, including its 
surveillance group, will monitor compliance with such rules.\53\ The 
Commission notes that while Specialist allocation procedures are not 
included within proposed Rule 510, Specialists will continue to be 
subject to numerous existing rules, some of which address allocation of 
options.\54\
---------------------------------------------------------------------------

    \52\ See BX Options Rules, Chapter VII, Section 4; Nasdaq 
Options Rules, Chapter VII, Section 4.
    \53\ See supra note 24 and accompanying text.
    \54\ See proposed Rule 508; Rules 506, 513. See also Rules 501, 
1014, 1022.
---------------------------------------------------------------------------

    The Commission believes that the Exchange's use of the Board or a 
Board Panel to hear appeals of Exchange decisions pursuant to Rules 507 
and 510, as opposed to a special committee of the Board, would retain 
an opportunity for the SQT, RSQT, or Specialist to be heard on the 
matter before the Exchange takes remedial action. The Commission notes 
the requirements that members of the Board Panel will not be involved 
in the Exchange decision appealed from, have no conflicts of interest, 
and be considered by the Board to be qualified, and that one member 
will be a person who would qualify as a public member as defined in 
Article I of the By-Laws. The revised appeal procedures for decisions 
pursuant to Rule 510 concerning SQTs and RSQTs mirror procedures 
already in place in other contexts.
    Finally, the Commission believes that the proposal's minor, 
conforming revisions to Rules 507 and 508 are consistent with the Act.

IV. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 to the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2016-105 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2016-105. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make

[[Page 11971]]

available publicly. All submissions should refer to File Number SR-
Phlx-2016-105, and should be submitted on or before March 20, 2017.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of the notice of Amendment No. 1 in the 
Federal Register. As described above, in Amendment No. 1, Phlx updated 
its proposal to reflect: (1) That members of the Board Panel may not 
have been involved at all in the decision appealed from and must 
otherwise have no conflict of interest; and (2) that the Board shall 
choose individuals whose background, experience, and training qualify 
them to consider and make determinations regarding the subject matter 
to be presented to the panel. The Commission believes that Amendment 
No. 1 clarifies the criteria for ensuring the independence of the Board 
Panel that could hear an appeal pursuant to Rules 507 and 510. 
Accordingly, for the reasons noted above, the Commission finds good 
cause for approving the proposed rule change, as modified by Amendment 
No. 1, on an accelerated basis, pursuant to Section 19(b)(2) of the 
Act.\55\
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\56\ that the proposed rule change (SR-Phlx-2016-105), as modified 
by Amendment No. 1 thereto, be, and hereby is, approved on an 
accelerated basis.
---------------------------------------------------------------------------

    \56\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\57\
---------------------------------------------------------------------------

    \57\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03729 Filed 2-24-17; 8:45 am]
 BILLING CODE 8011-01-P