
[Federal Register Volume 82, Number 183 (Friday, September 22, 2017)]
[Notices]
[Pages 44481-44483]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-20202]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81642; File No. SR-Phlx-2017-55)


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
of Proposed Rule Change To Amend Certain Sections of Rules 1024, 
Conduct of Accounts for Options Trading, and of 1025, Supervision of 
Accounts, To Conform Them More Closely To Comparable Rules of the 
Chicago Board Options Exchange (``CBOE'') and To Make Minor 
Clarifications and Corrections to the Text

September 18, 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 September 7, 2017 NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III, below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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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 proposes to amend certain sections of Rules 1024, 
Conduct of Accounts for Options Trading, and of 1025, Supervision of 
Accounts, to conform them more closely to comparable rules of the 
Chicago Board Options Exchange (``CBOE'') and to make minor 
clarifications and corrections to the text.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.cchwallstreet.com/ 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
    Rules 1024 and 1025 contain a range of regulatory requirements 
generally applicable to Phlx members and member organizations that 
conduct a public customer options business. The Exchange is proposing a 
number of changes to certain sections of those rules to clarify the 
language of those rules and to correct inaccuracies. The Exchange also 
proposes to change certain rule language to conform the rules more 
closely to CBOE rules dealing with the same subject matter, in order to 
more easily facilitate compliance by dual members and to prevent 
inadvertent misunderstandings of the rules' requirements that can arise 
from slight wording differences. These rule changes are generally 
intended to promote more effective regulatory compliance by Exchange 
members and member organizations. The proposed changes are detailed 
below.
Rule 1024(a)(i)
    Rule 1024(a)(i) governs registration of Options Principals.\3\ The 
rule currently provides that no member or member organization or 
individual associated with a member organization shall be approved to 
transact options business with the public until such persons, who are 
designated as Options Principals, have been approved by and registered 
with the Exchange. Additionally, it provides that persons engaged in 
the supervision of options sales practice or a person to whom the 
designated general partner or executive officer (pursuant to Rule 1025) 
or another Registered Options Principal \4\ delegates the authority to 
supervise options sales practices shall be designated as Options 
Principals. Finally, the rule states that all members and member 
organizations must use Web CRD to submit Form U4, Uniform Application 
for Securities Industry Registration or Transfer filings on behalf of 
their Options Principals. Members and member organizations are required 
under the rule to amend Form U4 filings not later than thirty (30) days 
after the filer knew or should have known of the facts which gave rise 
to the amendment.
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    \3\ See Rule 612(d).
    \4\ Id.
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    The Exchange is proposing to amend Rule 1024(a)(i) by adopting 
language requiring Options Principals to electronically file a Uniform 
Application for Securities Industry Registration or Transfer (Form U4) 
with Web CRD, to successfully complete an examination prescribed by the 
Exchange and specified in Rule 1024 for the purpose of demonstrating an 
adequate knowledge of the options business and of the Rules of the 
Exchange, and to further agree in the U4 filing to abide by the Bylaws 
and Rules of the Exchange and the Rules of The Options Clearing 
Corporation. The Exchange is proposing to remove the sentence that 
requires members and member organizations to amend Form U4 filings not 
later than thirty (30) days after the filer knew or should have known 
of the facts which gave rise to the amendment. However, the Exchange 
proposes to add language requiring members and member organizations 
that are required to complete Form U4 to promptly (but in any event no 
later than 30 days after the filer knew or should have known of the 
facts which gave rise to the need for the amendment) electronically 
file any required amendments to Form U4 with Web CRD. Additionally, new 
language is proposed that would require termination of employment or 
affiliation of any Registered Options Principal in such capacity to be 
promptly, but in any event no later than 30 days following the 
termination, electronically reported to Web CRD together with a brief 
statement of the reason for such termination on Form U5. The amendment 
would conform Rule 1024(a) more closely to CBOE Rule 9.2. The proposal 
would also correct a reference in the second sentence to ``options sale 
practice,'' substituting for that term ``options sales practices''.
Rule 1024(b)(ii)
    Rule 1024(b)(ii) generally provides that, in approving a customer's 
account for options transactions, a member or member organization shall 
exercise due diligence to learn the essential facts as to the customer 
and his investment objectives and financial situation, and shall make a 
record of such information. It also provides for approval and for 
confirmation of approval of the customer's account by a Registered 
Options Principal qualified individual.
    For purposes of clarity, the Exchange proposes to eliminate 
references in Rule 1024(b)(ii) to a ``specific'' or ``specified'' 
Registered Options Principal. It also proposes to delete the words 
``qualified individual'' as they appear following references to 
Registered Options Principals to eliminate any ambiguity, as it is not 
clear what a Registered Options Principal qualified individual

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means if not a Registered Options Principal. Finally, the Exchange 
proposes to relocate the phrase ``within a reasonable period of time'' 
simply to conform the rule in this respect more closely to CBOE Rule 
9.7.
Rule 1024(c)(v)
    Rule 1024(c)(v) is proposed to be amended by changing an inaccurate 
internal cross reference, from Rule 1029(c) to Rule 1029(b).
Rule 1024 Commentary .01 Section 8
    The Exchange is proposing to delete the word ``other'' as 
unnecessary and to correct the placement of a closing parenthesis, 
moving it from after the word ``transactions'' to after the word 
``commodities''.
Rule 1024 Commentary .03
    The Exchange is proposing to add the inadvertently omitted word 
``an'' before the word ``opportunity''.
Rule 1024 Commentary .06
    The Exchange is proposing to reword the sentence for clarity, so 
that it states that individuals engaged in the supervision of options 
sales practices are required to be designated as Options Principals and 
are required to qualify as an Options Principal by passing one of the 
examinations referred to in the rule. The Exchange also proposes to 
amend the rule's reference to the Series 9/10 examination, in order to 
use the same name that the Financial Industry Regulatory Authority 
(``FINRA'') uses for that examination.
Rule 1024 Commentary .07
    The Exchange proposes to add the inadvertently dropped word 
``reviewing'' to a sentence that requires individuals who are delegated 
responsibility for reviewing, among other things, the acceptance of 
discretionary accounts, to be designated as Options Principals and pass 
the Series 4 examination.
Rule 1025(a)(iii)A
    The Exchange proposes to substitute the word ``responsibility'' for 
the word ``responsibilities'' simply to conform the rule more closely 
to CBOE Rule 9.8(a)(3)(i).
Rule 1025(b)(i)
    The Exchange proposes to make minor, nonsubstantive, clarifying 
wording changes which would conform the rule language more closely to 
that of CBOE Rule 9.8(b)(1), by removing the unnecessary words ``above-
noted'', by replacing the words ``requirements applicable to'' with the 
words ``responsibility of'', by deleting the unnecessary words 
``however, the'', and by replacing the words ``other than the principal 
supervisory office if such documents and information'' with the words 
``off premises so long as the records''.
Rule 1025(b)(iii)
    The Exchange proposes to capitalize the word ``Rule'' in a 
reference to SEC rule 17a-4, to conform the language more closely to 
CBOE Rule 9.8(b)(3).
Rule 1025(b) Concluding Sentence
    The words ``any person'' are proposed to be substituted for the 
words ``a person'', and an inaccurate reference to ``this paragraph 
(b)(3)'' is proposed to be corrected to read ``this paragraph 
(b)(iii)''.
Rule 1025(d)
    An extraneous word ``the'' is proposed to be deleted before the 
word ``proximity'' to conform more closely to CBOE Rule 9.8(d)(1)(i), 
and an inaccurate reference to Rule 1025(c) is proposed to be corrected 
to read Rule 1025(e).
Rule 1025(e)
    The Exchange proposes to remove an extraneous comma to conform the 
rule more closely to CBOE Rule 9.8(e)(1) and to change an incorrect 
internal cross reference from paragraph (e)(1) to paragraph (e)(i).
Rule 1025(g)
    Currently, Rule 1025(g) requires each member organization that 
conducts a non-member customer business to submit each year to the 
Exchange a written report on the member organization's supervision and 
compliance effort during the preceding year. The Exchange proposes to 
expand the requirement to conform it more closely to CBOE Rule 9.8(g), 
by specifying that the report must also detail the adequacy of the 
member organization's ongoing compliance processes and procedures. The 
proposed amendments to Rule 1025(g) would also require the Chief 
Executive Officer (or equivalent) to certify that the member 
organization has in place processes to test the effectiveness of 
policies and procedures on a periodic, rather than on a regular, basis. 
This change would conform the Exchange's requirement more closely to 
the comparable CBOE Rule 9.8(g)5(i)(C) requirement. The proposal would 
also correct the spelling of the word ``preceding'' in Rule 
1025(g)(ii), add missing semicolons to an itemized list found in Rule 
1025(g)(iii), correct inaccurate internal cross references in Rules 
1025(g)(v)(C) and (D), as well as correct the placement of a closing 
parenthesis in Rule 1025(g)(v)(C). Finally, it would replace the 
awkward phrase ``this requirement of this Rule'' with ``the 
requirements of this Rule''.
Rule 1025(h)
    Rule 1025(h) currently provides that each member organization shall 
submit the report required by Rule 1024(g) to its one or more control 
persons or, if the member organization has no control person, to the 
audit committee of its board of directors or its equivalent committee 
or group. The Exchange proposes to replace the inaccurate reference to 
Rule 1024(g) with a correct reference to Rule 1025(g). The Exchange 
proposes to add language to the end of the rule to establish the 
meaning of ``control person,'' proposed to be defined as a person who 
controls the member organization. The new language would define the 
term ``control'' as meaning the power to exercise a controlling 
influence over the management or policies of the member organization, 
unless such power is solely the result of an official position with the 
member organization. Finally, the new language would state that any 
person who owns beneficially, directly or indirectly, more than 20% of 
the voting power in the election of directors of the member 
organization, or more than 25% of the voting power in the election of 
directors of any other corporation which directly or through one or 
more affiliates owns beneficially more than 25% of the voting power in 
the election of directors of the member organization, shall be presumed 
to control the member organization. The proposed new language is based 
on CBOE Rules 9.8(h) and 1.1(k), which is incorporated by reference 
into CBOE Rule 9.8(h).
Rule 1025 Commentary .02 and .03
    Rule 1025 Commentary .02 is proposed to be amended by deleting the 
introductory phrase ``In meeting their supervisory responsibilities'' 
in order to conform the language more closely to CBOE Rule 9.8, 
Interpretations and Policies .01. The rule currently requires member 
organizations conducting a non-member customer business to enforce 
written procedures governing the conduct of options accounts. As 
revised, the written procedures would be required to detail the 
specific methods used to supervise all non-member customer accounts and 
all orders in such accounts. This amendment would also provide greater 
clarity regarding the required content of

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the procedures and also would conform the rule more closely to CBOE 
Rule 9.8 Interpretations and Policies .01. The last sentence of 
Commentary .02 would be revised by replacing the phrase ``short 
uncovered'' options positions with the phrase ``uncovered short'' 
options positions. Finally, the Exchange proposes to amend Rule 1025 
Commentary .03 by adding the word ``shall'' to the first sentence, to 
conform the language more closely to CBOE Rule 9.8, Interpretations and 
Policies .02.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\6\ 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. 
The amendments should remove impediments to and perfect the mechanism 
of a free and open market and a national market system, by correcting 
various aspects of the rules and by adding additional clarity to the 
rules. The minor corrections and clarifications described above should 
improve the accuracy of the rules and should also improve their 
readability, making them more understandable and thereby facilitating 
easier compliance.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    Additionally, where certain sections of the Phlx rules are proposed 
to be amended to conform more closely to comparable rules of the CBOE, 
the proposed rule change should create greater regulatory parity among 
the two options exchanges regarding members' obligations in the areas 
of conduct of accounts for options trading and supervision of accounts. 
The proposed amendments should create more efficient regulatory 
compliance by members of both exchanges due to reduction of differences 
in wording and consequent potential for inadvertent regulatory 
noncompliance. In this regard, the Exchange believes it is in the 
public interest for a more consistently worded regulatory policy and 
standard regarding conduct of accounts for options trading and 
supervision of accounts to be in effect across options exchanges, for 
the benefit of customers.

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. As stated above the proposal is 
designed to correct various aspects of the rules and to add additional 
clarity to various sections of the rules, which are equally applicable 
to all similarly situated members and member organizations. Certain 
aspects of the proposed rule change to amend various sections of Rules 
1024 and 1025 are also designed to conform to Phlx rules more closely 
to comparable rules of CBOE, thus eliminating a potential source of 
regulatory arbitrage and facilitating compliance by dual members.

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 (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such 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 email to rule-comments@sec.gov.ase include File 
Number SR-Phlx-2017-55 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-2017-55. 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-2017-55 and 
should be submitted on or before October 13, 2017.
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    \7\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-20202 Filed 9-21-17; 8:45 am]
 BILLING CODE 8011-01-P


