[Federal Register Volume 81, Number 82 (Thursday, April 28, 2016)]
[Notices]
[Pages 25464-25467]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09896]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77687; File No. SR-Phlx-2016-48]
Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Regarding Rule 606
April 22, 2016.
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 April 7, 2016, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'')
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 Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposal to amend Rule
606 (Communications and Equipment). The proposed amendment is described
further below.\3\
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\3\ References to rules are, unless otherwise stated, to the
rules of the Exchange.
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The text of the proposed rule change is available on the Exchange's
Web site at http://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 Exchange proposes to amend Rule 606 to: (1) Add language that
would allow the Exchange to limit the use of a communication device
under certain circumstances; (2) Clarify the process for changing
registration of user, and delete obsolete language regarding wattage
and add language regarding Web-based and open microphone (``open mic'')
\4\ communication applications; (3) Clarify [sic] language regarding
call forwarding and open mic; (4) Delete obsolete language regarding
stock execution clerks and in-house phone use; and (5) Add [sic]
language regarding records.
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\4\ Open mic allows listeners other than the intended party on
the other end of a line (e.g., telephone) to listen to the
conversation.
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Rule 606, which applies to the use of electronic communication
devices on the options floor of the Exchange (``Options Floor''), has
been around for more than fifty years,\5\ at which time Exchange
options trading was strictly on-floor open outcry through specialists.
Exchange options trading has, since that time, developed into a robust
hybrid
[[Page 25465]]
system that is currently largely electronic and off-floor \6\ but
continues to have an on-floor specialist \7\ and an open outcry trading
floor. The Exchange is now updating and modernizing Rule 606 as
discussed below.\8\
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\5\ Since the inception of Rule 606 in 1964, the rule was
amended about ten times, with the last substantive amendment in
2002. See Securities Exchange Act Release No. 49098 (February 13,
2002), 67 FR 8053 (February 21, 2002) (SR-Phlx-2001-109) (notice of
filing and immediate effectiveness regarding tethered communication
devices). See also Securities Exchange Act Release Nos. 49098
(January 16, 2004), 69 FR 3974 (January 27, 2004) (SR-Phlx-2003-73)
(approval order); 54538 (September 28, 2006), 71 FR 59184 (October
6, 2006) (SR-Phlx-2006-43) (approval order); 59924 (May 14, 2009),
74 FR 23759 (May 20, 2009) (Phlx-2009-23) (approval order); and
64338 (April 25, 2011), 76 FR 24069 (April 29, 2011) (SR-Phlx-2011-
13) (approval order) (these last four proposals made non-substantive
technical or conforming changes to Rule 606).
\6\ Electronic traders include market makers that are SQTs,
RSQTs, and off-floor specialists (``Remote Specialists''). See Rules
1014(b)(ii)(A), 1014(b)(ii)(B), and 1020.
\7\ Unlike specialists, Remote Specialists do not have a
physical presence on the floor of the Exchange. Rule 1020.
\8\ While the vast majority of options-related rules are found
in Rule 1000 and higher (with option index rules found in Rule 1000A
and higher), some of the older options-related rules are, as
discussed, numbered below 1000.
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First, currently Rule 606 states in section (d) that the Exchange
may remove any telephonic, electronic, or wireless equipment that
violates subsection (b)(2) from any Exchange facility.\9\ The Exchange
proposes language in section (d) of Rule 606 to indicate when the
Exchange may deny, limit, or revoke the use of any communication device
under certain circumstances.
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\9\ Section (b)(2) of Rule 606 states: (2) No member, member
organization or person associated with a member organization shall:
(i) Establish or maintain any telephonic, electronic or wireless
transmitting system or device, including related antennas, on the
Options Floor or (ii) operate any other equipment on the Options
Floor that creates radio frequency (RF) or other interference with
the systems of the Exchange or other members.
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Specifically, the Exchange proposes language in section (d) to
state that the Exchange may deny, limit, or revoke the use of any
communication device: [sic] whenever it determines that use of such
communication device: (1) Interferes with normal operation of the
Exchange's own systems or facilities or with the Exchange's regulatory
duties; (2) is inconsistent with the public interest, the protection of
investors or just and equitable principles of trade; or (3) interferes
with the obligations of a member or member organization to fulfill its
duties under, or is used to facilitate any violation of, the Securities
Exchange Act or rules thereunder, or Exchange rules. This gives the
Exchange the opportunity to limit the use of a communication device
that interferes or is inconsistent with three specified crucial areas
as proposed in the rule. The proposed section (d) provision is similar
in relevant part to a provision in the communication rule of another
options Exchange, Chicago Board Options Exchange (``CBOE''),\10\ and is
similar to certain provisions of other Exchange rules.\11\
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\10\ Proposed Rule 606(d)(1) states: The Exchange may deny,
limit or revoke the use of any communication device whenever it
determines that use of such communication device: (1) Interferes
with normal operation of the Exchange's own systems or facilities or
with the Exchange's regulatory duties, (2) is inconsistent with the
public interest, the protection of investors or just and equitable
principles of trade, or (3) interferes with the obligations of a
member or member organization to fulfill its duties under, or is
used to facilitate any violation of, the Securities Exchange Act or
rules thereunder, or Exchange rules. CBOE Rule 6.23(b) states: The
Exchange may deny, limit or revoke the use of any communication
device whenever it determines that use of such communication device:
(1) Interferes with the normal operation of the Exchange's own
systems or facilities or with the Exchange's regulatory duties, (2)
is inconsistent with the public interest, the protection of
investors or just and equitable principles of trade, or (3)
interferes with the obligations of a Trading Permit Holder to
fulfill its duties under, or is used to facilitate any violation of,
the Securities Exchange Act or rules thereunder, or Exchange rules.
\11\ See, e.g., Rule 1005 and Rule 1006 (provisions regarding
advisable in the public interest or for the protection of
investors).
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Second, Rule 606 currently states in Section (e)(1) regarding
registration that members and member organizations must register, prior
to use, any new telephone to be used on the Options Floor. Each phone
registered with the Exchange must be registered by category of user;
and if there is a change in the category of any user, the phone must be
re-registered with the Exchange.\12\ The Exchange now proposes to
update the process for changing registration of user. Specifically, the
Exchange proposes to change the requirement in Section (e)(1) that the
phone must be re-registered with the requirement that the member or
member organization must immediately inform the Exchange in writing on
the same day as when the change occurs.
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\12\ Such users can be, for example, floor broker, specialist,
or registered options trader. The users that have originally
registered and still remain on the Exchange floor have not changed
their category of user.
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The Exchange believes that the proposed updated procedure is better
because while the rule currently does not indicate a timeline when [a
phone must be re-registered, the proposed rule change requires written
notification to the Exchange on the same day as when the change occurs.
Rule 606 currently states in Section (e)(2) regarding capacity and
functionality that no wireless telephone used on the Options Floor may
have an output greater than one watt. No person on the Options Floor
may use any device for the purpose of maintaining an open line of
continuous communication whereby a person not located in the trading
crowd may continuously monitor the activities in the trading crowd.
This prohibition covers intercoms, walkie-talkies, and any similar
devices. Speed-dialing features are permitted on any member telephone.
The Exchange is now proposing to delete obsolete language regarding
wattage and to add new language regarding web-based and open mic
communication applications.\13\ Specifically, the Exchange is proposing
to delete language in in Section (e)(2) that no wireless telephone used
on the Options Floor may have an output greater than one watt. While
the power limitation may have made sense when wireless was just
initiated as a new technology on the Options Floor,\14\ this wattage
limitation provision is obsolete and no longer needed. In light of the
current development of technology, the one watt power limitation
provision is no longer needed to minimize the possibility of radio
frequency or other interference with the systems of the Exchange of
those of other members.
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\13\ These can be, for example, instant messaging, chat, or
Skype.
\14\ See Securities Exchange Act Release No. 43972 (February 15,
2001), 66 FR 12579 (February 27, 2001) (SR-Phlx-00-48) (approval
order). The order notes that the purpose of the one watt power
limitation was to minimize the possibility of radio frequency or
other interference with the systems of the Exchange of those of
other members.
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Rule 606 currently states in Section (e)(2) no person on the
Options Floor may use any device for the purpose of maintaining an open
line of continuous communication whereby a person not located in the
trading crowd may continuously monitor the activities in the trading
crowd; and that this prohibition covers intercoms, walkie-talkies, and
any similar devices.\15\ Because of the advancement of technology and
proliferation of the web, the Exchange is proposing in Section (e)(2)
to also add Web-based, as well as open mic, communication applications.
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\15\ For clarity, the Exchange is proposing to state that the
prohibition in Section (e)(2) covers, ``but is not limited to,'' the
noted devices.
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Third, Rule 606 currently states in Section (e)(4) regarding
brokers that work on the Options Floor (``Floor Brokers'') \16\ [sic]
may use cellular and cordless telephones, but only to communicate with
persons located on the Options Floor. These telephones may not include
a call forwarding feature.\17\ Because of the availability of call
forwarding and open mic on virtually all wireless phones, the Exchange
is proposing to update this provision. Specifically, the Exchange is
proposing in Section (e)(4) to state that telephones used by Floor
Brokers may not use a call forwarding or open mic
[[Page 25466]]
feature on the Options Floor; and that if a call forwarding or open mic
feature is available on the phone then such feature must be disengaged
at all times when the phone is on the Options Floor.
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\16\ A ``Floor Broker'' is defined in Rule 1060 as ``[a]n
individual who is registered with the Exchange for the purpose,
while on the Options Floor, of accepting and handling options
orders.''
\17\ Headsets are permitted for Floor Brokers, but if the
Exchange determines that a Floor Broker is maintaining a continuous
open line through the use of a headset, the Floor Broker will be
prohibited from future use of any headset for a length of time to be
determined by the Exchange. Rule 606(e)(4)(a).
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Fourth, Rule 606 currently discusses in Section (e)(5) phone use by
stock execution clerks; and in Section (e)(6) the use of general access
in-house phones. Stock execution clerks and general access in-house
phones no longer exist and these terms are obsolete. Therefore, the
Exchange specifically proposes to delete reference [sic] to these
obsolete terms from Sections (e)(5) and (e)(6).
Fifth, Rule 606 currently discusses in Section (e)(7) that members
must maintain their cellular or cordless telephone records, including
logs of calls placed, for a period of not less than one year. The
Exchange reserves the right to inspect and/or examine such telephone
records. The Exchange proposes to modernize this requirement.
Specifically, the Exchange proposes in Section (e)(7) to state that
members must maintain their logs of calls and chats, including cellular
or cordless telephone records and logs of calls placed, for a period of
not less than three years, the first two years in an easily accessible
place. The Exchange believes that this proposed change will help with
the Exchange's surveillance function. The proposed section (e)(7)
provision is similar in relevant part to a provision in the
communication rule of another options exchange, CBOE,\18\ and to other
Exchange record-keeping rules.\19\
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\18\ Proposed Rule 606(e)(7) states: Members must maintain logs
of calls and chats, including their cellular or cordless telephone
records and logs of calls placed, for a period of not less than
three years, the first two years in an easily accessible place. The
Exchange reserves the right to inspect and/or examine such telephone
records. CBOE Rule 6.23(g) states: Trading Permit Holders must
maintain records of the use of communication devices, including, but
not limited to, logs of calls placed; emails; and chats, for a
period of not less than three years, the first two years in an
easily accessible place. The Exchange reserves the right to inspect
such records pursuant to CBOE Rule 17.2.
\19\ See Rule 616 (electronic filing requirements for uniform
forms) and Rule 605 (advertisements, market letters, research
reports and sales literature). See also Rule 1049 (communications to
customers).
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Finally, in terms of housekeeping changes in Rule 606(e)(4)(b) the
Exchange is proposing to substitute the word ``orders'' for ``others''
so that the section reads properly.
The Exchange believes that the proposed changes to Rules 606 will
make it clearer and better.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\20\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\21\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest by proposing to make several changes in Rule
606.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the rule change will promote just and
equitable principles of trade by making the rules clearer and easier to
use. The Exchange is proposing in Rule 606(d) to add language that
would allow the Exchange to limit the use of a communication device
when such device interferes with normal operation of the Exchange's own
systems or facilities or with the Exchange's regulatory duties, is
inconsistent with the public interest, the protection of investors or
just and equitable principles of trade, or interferes with the
obligations of a member or member organization to fulfill its duties
under, or is used to facilitate any violation of, the Securities
Exchange Act or rules thereunder, or Exchange rules. The proposed
section (d) provision is, as discussed, practically verbatim like a
provision in the communication rule of another options Exchange, CBOE.
The Exchange is proposing in Rule 606(e)(2) to delete language
regarding wattage that is obsolete and no longer needed.
The Exchange is also proposing in Rule 606(e)(5) to delete obsolete
language regarding stock execution clerks and in-house phone use, as
these are not present on the Options Floor. The Exchange believes that
the rule change will serve to protect investors and the public by
making the rule tighter and better for surveillance regarding
communication devices.
The Exchange is proposing language in Rule 606(e)(1) to clarify the
process for changing registration of user so that, instead or having to
re-register when user status changes, the member or member organization
must immediately inform the Exchange in writing on the same day as when
the change occurs.
The Exchange is proposing in Rule 606(e)(2) to add language
regarding web-based and open mic communication applications because of
the considerable advancement of technology and proliferation of the web
and the absence of such language in the rule.
The Exchange is proposing in Rule 606(e)(4) to state, instead of
telephones may not include a call forwarding feature, that Floor
Brokers may not use a call forwarding or open mic feature on the
Options Floor and that the call forwarding or open mic feature must be
disengaged at all times when the phone is on the Options Floor.
The Exchange is also proposing in Rule 606(e)(7) to modernize the
records retention requirement for telephone records so that, similar in
relevant part to the requirement of another exchange, CBOE, and to
other Exchange rules, and also to help with the Exchange's surveillance
function, members must maintain logs of calls and chats for a period of
not less than three years, the first two years in an easily accessible
place.
The Exchange believes that the proposed changes to Rules 606 will
make it clearer and better and therefore beneficial to market
participants. The Exchange believes also that the changes proposed to
Rule 606 will protect investors and the public interest. As the
Exchange has noted, the changes remove references to obsolete and
unused concepts that are no longer needed, strengthen features and add
features of the rule to make it more current, and strengthen the record
retention requirements. Such proposed changes are in the public
interest, and continue to serve to protect investors.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
While the Exchange does not believe that the proposed non-controversial
change is a burden on competition, or is competitive in nature, the
Exchange believes that clearer, updated rules that do not refer to
obsolete language and are in line with other rule concepts are always
beneficial to market participants.
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, the proposed rule
change has become effective pursuant to Section 19(b)(3)(A)
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of the Act \22\ and Rule 19b-4(f)(6) thereunder.
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\22\ 15 U.S.C. 78s(b)(3)(A).
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Phlx has requested that the Commission waive the 30-day operative
delay so that it can expeditiously eliminate references to obsolete
concepts and modernize Rule 606 to take into account current
technology. The Commission believes that waiving the 30-day operative
delay is consistent with the protection of investors and the public.
The Commission notes that, among other things, the proposed rule change
will require Phlx members to maintain logs of calls and chats,
including their cellular or cordless telephone records and logs of
calls placed, for a period of not less than three years, the first two
years in an easily accessible place. The waiver of the operative delay
will allow Phlx to implement its maintenance and use of records rules,
along with the above-discussed requirements regarding communication
equipment, without undue delay. Therefore, the Commission designates
the proposal operative upon filing.\23\
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\23\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of this 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 will institute proceedings 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:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-Phlx-2016-48 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-2016-48. 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 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-2016-48 and should be
submitted on or before May 19, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12) and (59).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-09896 Filed 4-27-16; 8:45 am]
BILLING CODE 8011-01-P