
[Federal Register Volume 75, Number 221 (Wednesday, November 17, 2010)]
[Notices]
[Pages 70331-70335]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-28900]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63305; File No. SR-Phlx-2010-153]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change To Update and Streamline the Process for 
Specialist Evaluations and Clarify the Time Within Which SQTs and RSQTs 
Begin To Electronically Quote After Assignment

November 10, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on November 5, 2010, NASDAQ OMX PHLX LLC (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 Phlx 
By-Law Article XI (Appeals) Section 11-1; Phlx Rules 507 (Application 
for Approval as an SQT or RSQT and Assignment in Options), 508 
(Allocation Application), 510 (SQT and RSQT Performance Evaluation), 
511 (Specialist Performance Evaluation), and 515 (Specialist 
Evaluations); and Phlx Options Floor Procedure Advice (``OFPA'') C-8 
(Options Specialist Evaluations) to update the specialist evaluation 
process; ensure timely electronic quotations by Streaming Quote Traders 
and Remote Streaming Quote Traders; ensure the ability of the Exchange 
to control allocation transfers; and consolidate and delete unnecessary 
and obsolete rules and processes.
    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 self-regulatory organization 
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 those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend By-Law Article 
XI Section 11-1; Phlx Rules 507, 508, 510, 511, and 515; and OFPA C-8 
to enhance the ability to gauge specialist performance in an ever-
increasingly competitive electronic trading environment; ensure timely 
electronic quotations by Streaming Quote Traders and Remote Streaming 
Quote Traders; ensure the ability of the Exchange to control allocation 
transfers; and consolidate and delete unnecessary and obsolete rules 
and processes.
Background
    After the merger of The NASDAQ OMX Group, Inc. (``NASDAQ OMX'') and 
the Philadelphia Stock Exchange, Inc. (now NASDAQ OMX PHLX LLC),\3\ the 
Commission in May 2009 approved a Phlx filing that, among other things, 
transferred all relevant duties from the Options Allocation, Evaluation 
and Securities Committee (``Allocation Committee'') to the Exchange 
staff and established that the Exchange administers Exchange Rules 500 
through 599 (the ``Allocation and Assignment Rules'').\4\
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    \3\ See Securities Exchange Act Release Nos. 58179 (July 17, 
2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31); and 58183 
(July 17, 2008), 73 FR 42850 (July 23, 2008) (SR-NASDAQ-2008-035). 
See also Securities Exchange Act Release No. 62783 (August 27, 
2010), 75 FR 54204 (September 3, 2010) (SR-Phlx-2010-104).
    \4\ See Securities Exchange Act Release No. 59924 (May 14, 
2009), 74 FR 23759 (May 20, 2009) (SR-Phlx-2009-23) (approval 
order.) See also Rule 500.
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    The Allocation and Assignment Rules generally describe the process 
for: Application for becoming and appointment of specialists; 
allocation of classes of options to specialist units and individual 
specialists; \5\ application for becoming and approval of Streaming 
Quote Traders (``SQTs'') \6\ and Remote Streaming Quote Traders 
(``RQTs'') \7\ (together the ``Streaming Quote Traders'') \8\ and 
assignment of options to them; and performance evaluations for 
specialist units and Streaming Quote Traders. The Allocation and 
Assignment Rules also indicate, among other things, under what 
circumstances new specialist allocations and Streaming Quote Trader 
assignments may not be made.\9\
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    \5\ A specialist unit may have one or more individual 
specialists. See proposed Supplementary Material .05 to Rule 511.
    \6\ An SQT is a Registered Options Trader (``ROT'') who has 
received permission from the Exchange to generate and submit option 
quotations electronically in options to which such SQT is assigned. 
An SQT may only submit such quotations while such SQT is physically 
present on the floor of the Exchange. See Rule 1014(b)(ii)(A).
    \7\ An RSQT is an ROT that is a member or member organization 
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. An 
RSQT may only submit such quotations electronically from off the 
floor of the Exchange. See Rule 1014(b)(ii)(B).
    \8\ Streaming Quote Traders also include Directed SQTs 
(``DSQTs'') and Directed RSQTs (``DRSQTs''), which are SQTs and 
RSQTs that receive a Directed Order. Exchange Rule 1080(l)(i)(A) 
defines Directed Order.
    \9\ See, for example, Supplementary Material .01 to Rule 506 
(specialist may not apply for a new allocation for a period of six 
months after an option allocation was taken away from the specialist 
in a disciplinary proceeding or an involuntary reallocation 
proceeding). See also Commentary .02 to Rule 507 (establishing the 
Maximum Number of Quoters in assigned equity options).
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Specialist Evaluations
    Rule 511 and Rule 515 deal with specialist evaluations and certain 
allocation procedures. Currently, Rule 511 indicates, among other 
things, that specialist performance evaluations standards and 
procedures may be used in respect of Exchange decisions regarding 
allocating new options classes; reallocating options classes for 
substandard performance; determining whether a specialist that has been 
transferred an options class is performing adequately; and determining 
whether a staff reorganization or material change with respect to a 
specialist unit has affected the ability of the unit to continue to 
perform

[[Page 70332]]

adequately in order to retain allocated securities. Rule 511 also 
discusses the process and timing for doing routine and special (cause) 
evaluations and reviews. Currently, Rule 515 similarly discusses 
specialist performance evaluations for options specialists and 
indicates, among other things, the timing and frequency of evaluations. 
The criterion to evaluate specialists may include, but is not limited 
to, quality of markets, observance of ethical standards, administrative 
responsibilities, and trade correction and exemptive relief data. Rule 
515, like OFPA C-8, also discusses the use of floor broker 
questionnaires in the specialist evaluation process.
    The Exchange proposes to eliminate the floor broker questionnaire 
(``questionnaire''), which asks floor brokers their opinions of 
specialist performance and presumes that a specialist unit performed 
below minimum standards if the specialist unit was rated in the bottom 
10% of all units in the aggregate results for all questionnaires. The 
Exchange has found that such questionnaires, being wholly subjective in 
nature and not based on any hard data, would generally provide limited, 
if any, substantial value in the current fast-paced, competitive 
trading environment that includes numerous market participants and 
liquidity providers. The Exchange believes that the various types of 
specialist performance evaluations that are discussed in this filing 
enhance the evaluation process and make it increasingly data-based, and 
make questionnaires unnecessary. As such, the Exchange is deleting OFPA 
C-8 and all references to floor broker questionnaires in its Allocation 
and Assignment Rules and OFPAs.
    The Exchange proposes to consolidate Rules 511 and 515 into Rule 
511 and to adopt for specialist units \10\ an objective review process 
that is similar to the process currently in use for Streaming Quote 
Traders per Rule 510, particularly in respect of minimum performance 
standards. The Exchange also proposes to relocate portions of the 
existing evaluation process from Rule 515 into Rule 511. As such, there 
would be two types of specialist evaluations or reviews per Rule 511: 
a) routine Specialist Performance Evaluations, which would be conducted 
on at least an annual basis,\11\ and would include monthly Minimum 
Performance Reviews; \12\ and b) Special Circumstance Evaluations, 
which may be conducted if a specialist unit's performance was so 
egregiously deficient as to call into question the Exchange's integrity 
or impair the Exchange's reputation for maintaining efficient, fair and 
orderly markets; and within six months after a new allocation and 
within four months after transfer of one or more options.\13\
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    \10\ Proposed Supplementary Material .05 to Rule 511 states that 
reference to specialist unit within Rule 511 means the unit as a 
whole or any subpart of its operation that is acting in a specialist 
capacity on the Exchange and is subject to evaluation; and that a 
specialist unit may have one or more individual specialists. As 
such, individual specialist actions may be attributable to relevant 
specialist units in respect of matters discussed in this proposal 
such as evaluations. The proposed language in Rule 511 was moved 
from Rule 515 and updated to reflect current usage.
    \11\ See proposed Rule 511(c).
    \12\ See proposed Rule 511(d).
    \13\ See proposed Rule 511(e).
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    The Exchange proposes changes to Rule 511 so that specialist 
suspension, termination, or restriction of allocations in one or more 
options may occur after two or more consecutive sub-standard Minimum 
Performance Reviews or after Special Circumstance Evaluations and after 
written notice. As discussed below, following substandard minimum 
performance, a specialist unit may have an opportunity for an informal 
meeting with Exchange staff; and following a Special Circumstance 
Evaluation may be afforded thirty days to improve performance. 
Moroever, after a Minimum Performance Review or a Special Circumstance 
Evaluation, a specialist or specialist unit \14\ may appeal from a 
decision of the Exchange in accordance with Exchange By-Law Article XI, 
Section 11-1, after filing a written notice of appeal with the 
Exchange.\15\ The Exchange believes that this appeal process for 
specialists or specialist units per Rule 511, which is similar to the 
process afforded to Streaming Quote Traders per Rules 507 and 510, is 
fair and equitable and promotes uniformity for the various market 
participant members of the Exchange.\16\ The Exchange is, for similar 
reasons of uniformity, establishing new minimum performance standards 
for specialist units.
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    \14\ In proposed Rule 511(d) and Rule 511(e), a specialist has 
the right to request an appeal on behalf of his specialist unit.
    \15\ By-Law Article XI Section 11-1(c) states that an appeal: 
shall be heard by a special committee of the Board of Governors 
composed of three (3) Governors, of whom at least one (1) shall be 
an Independent Governor. The person requesting review may appeal by 
filing a written notice thereof with the Secretary of the Exchange 
within ten (10) days after a decision. The person requesting review 
shall be permitted to submit a written statement to and/or appear 
before this special committee. The Secretary of the Exchange shall 
certify the record of the proceeding, if any and the written 
decision and shall submit these documents to the special committee. 
The special committee's review of the action shall be based solely 
on the record, the written decision and any statement submitted by 
the person requesting the review. The special committee shall 
prepare and deliver to such person a written decision and reasons 
therefor. If the special committee affirms the action, the action 
shall become effective ten (10) days from the date of the special 
committee's decision. There shall be no appeal to the Board of 
Governors from any decision of the special committee.
     The Exchange is correcting a reference in By-Law Article XI 
Section 11-1(c) from Rule 511(e) to Rule 511(d) or (e), in light of 
the internal numbering changes proposed in Rule 511; and cross-
referencing Rule 507, which notes the availability of the appeal 
process.
    \16\ For consistency, the Exchange proposes appeal language in 
Rules 510 and 511 that is similar, in relevant part, to that of Rule 
507: An appeal to the Board of Governors from a decision of the 
Exchange * * * may be requested * * * by filing with the Secretary 
of the Exchange written notice of appeal within ten (10) days after 
the decision has been rendered, in accordance with Exchange By-Law 
Article XI, Section 11-1.
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    The minimum performance standards for specialist units in proposed 
Rule 511(d), which are part of the Specialist Performance Evaluation 
process, are similar to the minimum performance standards for Streaming 
Quote Traders in Rule 510 Commentary .01.\17\ This is done to promote a 
minimum performance floor across the Exchange for specialist units and 
Streaming Quote Traders.\18\ Thus, proposed Rule 511(d) suggests the 
minimum acceptable performance for specialist units using the following 
criteria: (a) The percentage of time that the specialist unit 
represents or exceeds the Phlx Best Bid or Offer (``PBBO'') in the 
options allocated to the unit; \19\ and (b) quoting requirements of 
specialist units pursuant to Rule 1014.\20\ Specifically, if the 
percentage of the total time that the options allocated to a specialist 
unit represent or exceed the PBBO is in the lowest quartile of all 
specialist units for two or more consecutive months, this may be 
considered sub-standard performance, that is, performance that does not 
attain minimum performance standards; and if a specialist unit fails

[[Page 70333]]

to meet the quoting requirements as prescribed by Rule 1014, this may 
be considered sub-standard performance. The Exchange proposes a process 
that would allow specialist to meet with Exchange staff regarding their 
sub-standard performance.
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    \17\ See Securities Exchange Act Release No. 55080 (January 10, 
2007), 72 FR 2324 (January 18, 2007) (SR-Phlx-2006-51) (order 
approving performance standards for Streaming Quote Traders and 
Remote Streaming Traders).
    \18\ Recognizing that among market participants on the Exchange 
specialists have diverse and at times greater market making 
responsibilities, which are not diminished by this filing, 
Specialist Performance Evaluations are available to the Exchange to 
review specialist performance and behavior (as discussed in more 
detail below).
    \19\ In that the Exchange is specifically establishing a measure 
of specialist performance on Phlx, the Exchange is changing the 
requirement to PBBO from NBBO (National Best Bid or Offer). A 
reference in Commentary .01 of Rule 510 is similarly changed to PBBO 
for the sake of conformity.
    \20\ This rule change proposal makes no changes to current 
quoting requirements for specialists delineated in Rule 1014. Rule 
1014 is written in terms of specialists; as noted in proposed 
Supplementary Material .05 to Rule 511, a specialist unit may have 
one or more specialists. See supra note 10.
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    The Exchange proposes in Rule 511(d)(ii) that if the Exchange finds 
that a specialist unit failed to meet Minimum Performance Standards, it 
will provide written notice to the unit. The Exchange proposes in Rule 
511(d)(iii) that the specialist unit may request and the Exchange may 
hold an informal meeting with the head specialist and any other 
appropriate specialist of the specialist unit to discuss the failure to 
meet minimum standards and to explore possible remedies. The Exchange 
will give notice of the meeting and no verbatim record will be kept. 
If, after receiving such notice for the Exchange, the specialist unit 
refuses or otherwise fails without reasonable justification to meet 
with the Exchange, the Exchange may refer the matter to the Business 
Conduct Committee (a standing committee of the Exchange) for the 
commencement of formal disciplinary proceedings. If the Exchange 
believes there are no mitigating circumstances that would demonstrate 
substantial improvement of or reasonable justification for the failure 
to meet minimum standards, the Exchange may take remedial action 
pursuant to subparagraph (d)(ii).
    The Exchange proposes in Rule 511(d)(ii) that if it finds sub-
standard minimum performance by a specialist unit, the Exchange may 
take the following remedial actions: a) restriction of allocations in 
additional options (subsection (d)(ii)(A)); b) suspension, termination, 
or restriction of allocations in one or more options (subsection 
(d)(ii)(B)); or c) suspension, termination, or restriction of the 
specialist or specialist unit's registration in general (subsection 
(d)(ii)(C)). Specialist units or specialists therein may appeal to the 
Board of Governors from a decision of the Exchange pursuant to 
subsection (d)(ii)(B) or subsection (d)(ii)(C) by filing the requisite 
notice of appeal.\21\ Minimum Performance Reviews will be conducted at 
least annually but may be conducted at monthly intervals.
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    \21\ See supra note 15. The Minimum Performance Standards; 
remedial action by the Exchange if there is a failure to attain such 
performance standards; and appeal rights therefrom are substantially 
similar for specialist units and SQTs/RSQTs per Rules 511 and 510, 
respectively.
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    Routine Specialist Performance Evaluations pursuant to proposed 
Rule 511(c) are conducted at annual (or shorter) intervals to determine 
whether specialists have fulfilled performance standards that may 
include, but are not limited to, trade correction data, exemptive 
relief data, quality of markets data, proper execution of duties as a 
specialist unit, competition among market makers and in representing 
the Exchange as specialist unit, observance of ethical standards, and 
administrative factors. The Exchange may also consider, when doing 
these routine evaluations, any other relevant information including, 
but not limited to, trading data, regulatory history, the number of 
requests for quote spread parameter relief, how a specialist unit 
optimizes the submission of quotes through the Specialized Quote Feed 
as defined in Rule 1080 by evaluating the number of individual quotes 
per quote block received by the Exchange, and such other factors and 
data as may be pertinent in the circumstances.
    The Exchange may also, but is not required to, conduct Special 
Circumstance Evaluations pursuant to proposed Rule 511(e) whenever the 
Exchange feels that circumstances warrant such reviews. These include, 
but are not limited to, where the Exchange believes that a specialist 
unit's performance in a particular market situation was so egregiously 
deficient as to call into question the Exchange's integrity or impair 
the Exchange's reputation for maintaining efficient, fair and orderly 
markets. Special Circumstance Evaluations may incorporate the same 
review methodology and procedures as established for routine Specialist 
Performance Evaluations or Minimum Performance Reviews. However, 
Special Circumstance Evaluations may instead or in addition examine 
such other matters related to a specialist unit's performance as the 
Exchange deems necessary and appropriate. Special Circumstance 
Evaluations may be done within six months of new allocations \22\ and 
within four months of transfers of allocations to specialist units.\23\
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    \22\ For purposes of conformity with the proposed six month 
period, 90 days is changed to 180 days (six months) in Rule 511(b).
    \23\ While Special Circumstance Evaluations are optional during 
the noted four month and six month periods, the Exchange may also 
conduct independent Minimum Performance Reviews on a monthly basis.
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    The Exchange may determine, pursuant to a Rule 511 Special 
Circumstance Evaluation, that a specialist unit that received a new 
allocation has not complied with any of the commitments that it made 
when applying for the options class, including but not limited to 
commitments regarding capital, personnel and order flow (subsection 
(e)(i)(A)); or that the performance of a specialist unit was inadequate 
after the transfer of one or more options classes or when there has 
been a material change in the specialist unit (subsection (e)(i)(B)). 
After the Exchange indicates to the applicable specialist unit why its 
performance is inadequate, the specialist unit will be afforded thirty 
days in which to improve its performance. If the specialist unit does 
not improve its performance, the Exchange may, after written notice, 
remove and reallocate one or more securities that were allocated to 
such unit. Specialists units and specialists therein may appeal to the 
Board of Governors from a decision of the Exchange pursuant to proposed 
subsection (e)(ii) by filing the requisite notice of appeal.\24\
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    \24\ See supra note 15.
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    Additionally, the rules establish limits on the allocation of 
options to specialist units that fail to perform adequately. By virtue 
of proposed Rule 511(e)(iii), if a specialist allocation in an option 
is terminated as a result of a Special Circumstance Evaluation, the 
specialist unit may not receive an allocation (or re-allocation) in the 
terminated option or options for a period not to exceed six months. 
Similarly, by virtue of proposed Rule 511(d)(v), if an allocation is 
terminated because a specialist exhibits sub-standard performance in 
terms of best bid and offer or in terms of quoting requirements, such 
specialist may not receive an allocation (or re-allocation) in the 
terminated option or options for a period not to exceed six months; and 
if an allocation is terminated because a specialist unit exhibits sub-
standard performance in terms of minimum quoting requirements per Rule 
1014, such specialist unit may not receive an allocation (or re-
allocation) in the terminated option or options for a period not to 
exceed twelve months.
    As discussed, all specialists and specialist units have the right 
to appeal from an Exchange decision that was taken pursuant to a 
Specialist Evaluation or a Special Circumstance Evaluation. Moreover, 
the rules indicate that the Exchange must provide written notice 
regarding the lack of adequate performance; and give specialist units 
an opportunity to discuss performance or improve performance before the 
Exchange takes remedial action. The Exchange feels that these 
procedures are fair, reasonable, and uniform for all specialists on the 
Exchange.\25\
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    \25\ In an effort to streamline the specialist evaluation 
process, and in light of the noted safeguards built into the 
Exchange's rules and By-Laws, the Exchange is deleting the formal 
hearing process that is currently in Rule 511(e) and proposes an 
informal hearing process in Rule 510 (regarding SQTs and RSQTs) and 
Rule 511 (regarding specialists).

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[[Page 70334]]

    In Rule 510 (regarding SQTs and RSQTs) and Rule 511 (regarding 
specialists), the Exchange proposes to eliminate the right to appeal 
from an Exchange's determination to restrict additional options 
allocations based on failure to meet minimum performance requirements. 
The Exchange believes that an appeals process for restriction of 
allocations or assignments in additional (not currently allocated or 
assigned) options, which would require a 10 day notice period followed 
by a potentially lengthy appeals proceeding, is not necessary and 
indeed may be counterproductive in light of the need to efficiently and 
timely allocate or assign additional options.
Assignment in Options
    Rule 507 deals with the process of applying for approval as an SQT 
or RSQT on the Exchange and assignment of options to SQTs and RSQTs. 
These are Registered Options Traders that, similarly to other market 
makers on the Exchange such as specialists, provide depth and liquidity 
through two-sided quotes in the options in which they are assigned. 
Rule 1014 discusses, among other things, the quote obligations of 
market makers and participants on the Exchange.\26\ Rule 507 defines 
the Maximum Number of Quoters (``MNQ'') in equity options, which 
establishes the greatest number of SQT and RSQT assignments that the 
Exchange may make in a particular class of option. MNQ in equity 
options is currently set in Commentary .02 to Rule 507 at no more than: 
Twenty-four market participants (SQTs and RSQTs) for equity options in 
the top 5% most actively traded options; nineteen market participants 
for the next 10% most actively traded options; and seventeen market 
participants for all other options.\27\
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    \26\ Rule 1014(b)(ii)(D) states that in addition to the other 
requirements for ROTs set forth in this Rule 1014, except as 
provided in sub-paragraph (4) below, an SQT and an RSQT shall be 
responsible to quote two-sided markets in not less than 60% of the 
series in which such SQT or RSQT is assigned, provided that, on any 
given day, a Directed SQT (``DSQT'') or a Directed RSQT (``DRSQT'') 
(as defined in Rule 1080(l)(i)(C)) shall be responsible to quote 
two-sided markets in the lesser of 99% of the series listed on the 
Exchange or 100% of the series listed on the Exchange minus one 
call-put pair, in each case in at least 60% of the options in which 
such DSQT or DRSQT is assigned. Whenever a DSQT or DRSQT enters a 
quotation in an option in which such DSQT or DRSQT is assigned, such 
DSQT or DRSQT must maintain until the close of that trading day 
quotations for the lesser of 99% of the series of the option listed 
on the Exchange or 100% of the series of the option listed on the 
Exchange minus one call-put pair.
    \27\ Regarding MNQ procedures in general, see Commentaries .01 
to .05 to Rule 507. See also Securities Exchange Act Release No. 
60688 (September 18, 2009), 74 FR 49058 (September 25, 2009) (SR-
Phlx-2009-82) (order approving modest increase in MNQ levels).
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    Because the number of assignments that may be made by the Exchange 
are limited by MNQ, thereby resulting in situations where SQTs and 
RSQTs may not be able to get assignments that they applied (and may be 
eligible) for, the Exchange is striving to ensure that option 
assignments are used to provide liquidity within a reasonable time 
after assignment. It is for this reason that the Exchange proposes to 
add new Commentary .01 to Rule 507 to state that within not more than 
thirty business days after assignment of an option pursuant to this 
rule, an assigned SQTs or RSQTs shall begin to generate and submit 
electronic quotations for such option through the Exchange's electronic 
quotation, execution, and trading system. Quoting requirements are, as 
previously noted, set forth in Rule 1014.\28\ Should an assigned SQT or 
RSQT not generate electronic quotes within the requisite time frame, 
the Exchange shall have the ability to terminate the assignment in 
question after providing written notice to the assigned SQT or RSQT, 
and make a re-assignment, unless there are exigent circumstances that 
the Exchange believes may not have allowed timely generation and 
submission of electronic quotes.\29\
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    \28\ Rule 1014 also sets forth circumstances in which market 
participants do not have quoting responsibilities. As an example, 
subsection (b)(ii)(D)(4) states that SQTs, DSQTs, RSQTs and DRSQTs 
are deemed not to be assigned, and therefore do not have quoting 
responsibilities, respecting Quarterly Option Series, adjusted 
option series, and series with an expiration of nine months or 
greater. Adjusted option series are defined as option series wherein 
one option contract in the series represents the delivery of other 
than 100 shares of underlying stock or Exchange-Traded Fund Shares. 
See Securities Exchange Act Release No. 61095 (December 2, 2009), 74 
FR 64786 (December 8, 2009) (SR-Phlx-2009-99) (notice of filing and 
immediate effectiveness).
    \29\ The Exchange has proposed other amendments to Rule 507 at 
SR-Phlx-2010-145 that should not impact this filing. Should it 
become necessary, however, the Exchange will propose additional rule 
text amendments.
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Transfer of Allocated Option Classes
    Rule 508 deals with agreements between specialist units to transfer 
one or more options classes that are already allocated by the Exchange 
to one of such units. This type of process tends to happen most often, 
and in fact is instrumental to facilitating the orderly transfer and 
continuation of markets in classes of allocated options, when a 
specialist unit significantly changes the scale or breadth of its 
specialist operation on the Exchange or withdraws from the Exchange.
    Currently, Rule 508 states that failure to provide the Exchange 
with prior notice of an arranged (agreed-upon) transfer of one or more 
already allocated options classes in accordance with this rule permits 
the Exchange to reallocate such options classes. The proposed change to 
Rule 508 states that failure to provide the Exchange prior notice of a 
transfer in accordance with this Rule, or failure to obtain Exchange 
approval of a transfer, permits the Exchange to recover the allocated 
securities and reallocate them. The Exchange believes that this is 
appropriate given that the Exchange initially makes the allocation of 
the option class after evaluating the relevant factors, and should 
continue to have a similar ability to evaluate the propriety of 
subsequent transfer of the same option class.
    Commentary .01 to Rule 508 also currently indicates that no member 
may effect a change in the floor trading location of any equity option 
or index option class until forty-five calendar days after final 
approval of the change by the Exchange has been disseminated to the 
option floor. The Exchange proposes to delete this provision. The 
Exchange believes that the forty-five day delay to affect a change is 
functionally obsolete and no longer necessary, particularly in the 
current fast-paced trading environment.\30\
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    \30\ The Exchange will notify relevant specialist units, 
specialists, or members regarding transfer applications pursuant to 
Rule 508.
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    Finally, the Exchange is proposing technical, housekeeping rule 
changes in respect of ensuring conformity of rule language and deleting 
references that are obsolete or no longer in use. For example, the 
reference to Registrant is changed to specialist or specialist unit in 
Rules 508 and 511, and the reference to grant is changed to allocate in 
Rule 511 for purposes of conformity.\31\ The Exchange is proposing to 
clean up the language of Commentary .02 of Rule 510 by removing 
reference to initial implementation of the existing rule. The Exchange 
is also proposing to conform Rule 511 language in light of the 
consolidation with Rule 515. Thus, reference to Specialist Performance 
Evaluations and Special Circumstance Evaluations, and reference to 
factors that may be considered by the Exchange (e.g., evaluations, 
trade correction data, exemptive relief data) are added to Rule

[[Page 70335]]

511(b); and reference to Rule 515 is deleted.
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    \31\ This change in terminology conforms it to current usage.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \32\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \33\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest, by updating and making more uniform the evaluation process 
for specialist units, ensuring timely electronic quotations by SQTs and 
RSQTs, and consolidating and deleting unnecessary and obsolete rules 
and processes. The Exchange believes that its rule change proposal does 
not engender unfair discrimination among specialists, specialist units, 
SQTs and RSQTs in that it proposes to amend rules and procedures that 
are equally applicable to all members and member organizations at the 
Exchange.
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    \32\ 15 U.S.C. 78f(b).
    \33\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within 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:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File No. SR-Phlx-2010-153 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2010-153. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2010-153 and should be 
submitted on or before December 8, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-28900 Filed 11-16-10; 8:45 am]
BILLING CODE 8011-01-P


