[Federal Register Volume 86, Number 180 (Tuesday, September 21, 2021)]
[Notices]
[Pages 52536-52539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-20325]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92986; File No. SR-Phlx-2021-52]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Adopt Phlx 
Options 10, Section 5, Branch Office, and Options 10, Section 17, 
Profit Sharing Rules

September 15, 2021.
    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 3, 2021, 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. Phlx filed the proposal 
as a ``non-controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 204.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt new Phlx Options 10, Section 5, 
Branch Office, and Options 10, Section 17, Profit Sharing. The Exchange 
also proposes to amend General 9, Section 58, and Options 10, Section 
6, Opening of Accounts.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, 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 adopt two new rules at Options 10, Section 
5, Branch Office, and Options 10, Section 17, Profit Sharing. The 
Exchange also proposes to amend General 9, Section 58 and Options 10, 
Section 6, Opening of Accounts. Each change will be described below.
Options 10, Section 5
    The Exchange proposes to adopt a new Options 10, Section 5, titled 
``Branch Offices.'' Options 10, Section 5 is currently reserved. The 
proposed rule would be similar to Nasdaq BX, Inc. (``BX'') and The 
Nasdaq Options Market LLC (``NOM'') Options 10, Section 5. The proposed 
rule text would provide,

    (a) Every OEF approved to do options business with the public 
under this Options 10 shall file with Phlx Regulation and keep 
current a list of each of its branch offices showing the location of 
each such office and the name of the manager of each such office.
    (b) No branch office of an OEF shall transact options business 
with the public unless the manager of such branch office has been 
qualified as a Options Principal or General Securities Sales 
Supervisor; provided, that this requirement shall not apply to 
branch offices in which not more than three (3) representatives are 
located so long as the OEF can demonstrate to the satisfaction of 
Phlx Regulation that the options activities of such branch offices 
are appropriately supervised by a Options Principal or General 
Securities Sales Supervisor.

Similar to BX and NOM, Phlx would require every Order Entry Firm or 
``OEF'' \5\ that is approved to do business with the public pursuant to 
Options 10 to file with Phlx Regulation a list of each branch office. 
The list must include the location of the branch office and the name of 
the manager of the office. The OEF must keep this list current. 
Further, an OEF must ensure that the branch office manager is qualified 
prior to transacting business with the public in the branch office. A 
manager must be registered as an Options Principal or General 
Securities Sales Supervisor, unless there are not more than three 
representatives in that branch office and the OEF can demonstrate to 
the satisfaction of Phlx Regulation that the options activities of such 
branch offices are appropriately supervised by an Options Principal or 
General Securities Sales Supervisor.
---------------------------------------------------------------------------

    \5\ The term ``Order Entry Firm'' or ``OEF'' means a member 
organization that submits orders, as agent or principal, on the 
Exchange. See Phlx Options 1, Section 1(b)(32).
---------------------------------------------------------------------------

    Currently, Phlx General 4,\6\ Section 1220(a)(8) \7\ and 
Supplementary Material .04 of that rule \8\ require the manager to be 
registered as an Options Principal or General Securities Sales 
Supervisor. In

[[Page 52537]]

2018, NOM's and BX's registration requirements \9\ were updated to 
mirror a similar change by FINRA.\10\ At that time, Phlx Options 10, 
Section 5 should have been amended to update the registrations 
applicable to a branch office manager to conform to the new General 4 
registration requirements. The Exchange is proposing to make those 
amendments at this time.
---------------------------------------------------------------------------

    \6\ Phlx General 4 is incorporated by reference to the General 4 
Rules of The Nasdaq Stock Market LLC.
    \7\ General 4, Rule 1220(a)(8) provides, in part, ``Each member 
that is engaged in transactions in options with the public shall 
have at least one Registered Options Principal. In addition, each 
principal as defined in paragraph (a)(1) of this Rule who is 
responsible for supervising a member's options sales practices with 
the public shall be required to register with the Exchange as a 
Registered Options Principal, subject to the following exception. If 
a principal's options activities are limited solely to those 
activities that may be supervised by a General Securities Sales 
Supervisor, then such person may register as a General Securities 
Sales Supervisor pursuant to paragraph (a)(10) of this Rule in lieu 
of registering as a Registered Options Principal.''
    \8\ Supplementary Material .04 to General 4, Rule 1220 provides, 
in part, ``Any person required to be registered as a principal who 
supervises sales activities in corporate, municipal and option 
securities, investment company products, variable contracts, direct 
participation program securities and security futures may be 
registered solely as a General Securities Sales Supervisor. In 
addition to branch office managers, other persons such as regional 
and national sales managers may also be registered solely as General 
Securities Sales Supervisors as long as they supervise only sales 
activities.''
    \9\ See Securities Exchange Act Nos. 84386 (October 9, 2018), 83 
FR 51988 (October 15, 2018) (SR-NASDAQ-2018-078) (Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend, 
Reorganize and Enhance Its Membership, Registration and 
Qualification Rules); and 84353 (October 3, 2018), 83 FR 50999 
(October 10, 2018) (SR-BX-2018-047) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Amend, Reorganize and 
Enhance Membership, Registration and Qualification Rules, and To 
Make Conforming Changes to Certain Other Rules).
    \10\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (SR-FINRA-2017-007) (Order 
Approving Proposed Rule Change To Adopt Consolidated Registration 
Rules, Restructure the Representative-Level Qualification 
Examination Program, Allow Permissive Registration, Establish Exam 
Waiver Process for Persons Working for Financial Services Affiliate 
of Member, and Amend the Continuing Education Requirements).
---------------------------------------------------------------------------

    The Exchange proposes to relocate Supplementary Material .08 to 
Options 10, Section 6 to proposed Supplementary Material .01 to Options 
10, Section 5 and amend a citation within proposed Supplementary 
Material .01(vi) of Options 10, Section 5 from ``(1)-(vii)'' to ``(i) 
to (vii)'' to conform the numbering.
    The proposed rule would permit Phlx to better regulate branch 
offices of member organizations \11\ by making clear within proposed 
Options 10, Section 5, related to doing business with the public, that 
an OEF that transacts business with the public must be qualified as a 
Registered Options Principal or General Securities Sales Supervisor. 
Further, the proposed rule explains that the requirement to be 
qualified as a Registered Options Principal or General Securities Sales 
Supervisor shall not apply to branch offices in which not more than 
three representatives are located so long as the OEF can demonstrate to 
the satisfaction of Phlx Regulation that the options activities of such 
branch offices are appropriately supervised by a Registered Options 
Principal or General Securities Sales Supervisor. This additional 
specificity will assist member organizations in complying with branch 
office requirements. Today, the Exchange has other rules to regulate 
supervision of branch office such as General 9, Section 20, 
Supervision. The addition of this rule, similar to NOM and BX, will 
permit Phlx to enforce the rule in a manner similar to NOM and BX by 
specifically requiring that members and member organizations that are 
doing business with the public maintain certain qualifications similar 
to NOM and BX. Members and member organizations that are required to 
comply with Options 10, Section 5 now have transparent information to 
determine if they have the appropriate manager qualifications. Also, 
the proposed rule makes clear when the requirement to be qualified as a 
Registered Options Principal or General Securities Sales Supervisor 
does not apply. The specified qualifications for branch managers will 
ensure branch offices are properly supervised by qualified individuals.
---------------------------------------------------------------------------

    \11\ The term ``member organization'' means a corporation, 
partnership (general or limited), limited liability partnership, 
limited liability company, business trust or similar organization, 
transacting business as a broker or a dealer in securities and which 
has the status of a member organization by virtue of (i) admission 
to membership given to it by the Membership Department pursuant to 
the provisions of General 3, Sections 5 and 10 or the By-Laws or 
(ii) the transitional rules adopted by the Exchange pursuant to 
Section 6-4 of the By-Laws. References herein to officer or partner, 
when used in the context of a member organization, shall include any 
person holding a similar position in any organization other than a 
corporation or partnership that has the status of a member 
organization. See General 1, Section 1(17).
---------------------------------------------------------------------------

Options 10, Section 17
    The Exchange proposes to adopt a new Options 10, Section 17, Profit 
Sharing. Options 10, Section 17 is currently reserved. The Exchange's 
rule is similar to FINRA Rule 2150(c),\12\ Sharing in Accounts; Extent 
Permissible.\13\ For purposes of comparing Phlx's proposed rule to 
FINRA's Rule 2150, the Exchange notes that the term ``member'' within 
FINRA Rule 2150 is equivalent to Phlx's defined term ``member 
organization.'' Phlx also utilizes an additional term, ``member'',\14\ 
to define its floor membership. Each ``member'' on Phlx's trading floor 
is required to obtain a permit to conduct business on the trading 
floor.\15\ FINRA does not have a similar trading floor concept.
---------------------------------------------------------------------------

    \12\ FINRA and Phlx utilize different terminology to describe 
members. Also, the rules are numbered differently and the rule 
citations differ.
    \13\ Phlx has rule text similar to FINRA Rule 2150(a) within 
General 9, Section 2(a). Also, Phlx has rule text similar to FINRA 
Rule 2150(b) within General 9, Section 54.
    \14\ The term ``member'' means a permit holder which has not 
been terminated in accordance with the By-Laws and these Rules of 
the Exchange. A member is a natural person and must be a person 
associated with a member organization. Any references in the rules 
of the Exchange to the rights or obligations of an associated person 
or person associated with a member organization also includes a 
member. See General 1, Section 1(16).
    \15\ See Phlx General 3, Section 11.
---------------------------------------------------------------------------

    Similar to FINRA Rule 2150(c), Phlx proposes to prohibit members, 
member organizations, and associated persons from sharing directly or 
indirectly in the profits or losses in any account of a customer, 
however the rule does provide three circumstance within proposed 
Options 10, Section 17(a)(1) through (3) wherein a member, member 
organization, or person associated with a member organization may share 
in the profits or losses in such an account.\16\ Specifically, proposed 
Options 10, Section 17(a) permits a member, member organization, or 
person associated with a member organization to share directly or 
indirectly in the profits or losses in any account of a customer 
carried by a member, member organization, or person associated with a 
member organization, if prior written authorization is obtained as 
described in proposed subparagraphs (1) and (2) and the member, member 
organization, or person associated with a member organization shares in 
the profits or losses in any account of such customer only in direct 
proportion to the financial contributions made to such account by 
either the member, member organization, or person associated with a 
member organization as described in proposed subparagraph (3).
---------------------------------------------------------------------------

    \16\ Proposed Options 10, Section 17(a)(1) through (3) provides 
that a member, member organization, or person associated with a 
member organization may share in the profits or losses in such an 
account if (1) such member or person associated with a member 
organization obtains prior written authorization from the member 
organization employing the associated person; (2) such member, 
member organization, or person associated with a member organization 
obtains prior written authorization from the customer; and (3) such 
member, member organization, or person associated with a member 
organization shares in the profits or losses in any account of such 
customer only in direct proportion to the financial contributions 
made to such account by either the member, member organization, or 
person associated with a member organization.
---------------------------------------------------------------------------

    Proposed Options 10, Section 17(b) exempts from paragraph (a)(3) 
the accounts of the immediate family of such member, member 
organization, or person associated with a member organization. The rule 
proposes to define ``immediate family'' to include parents, mother-in-
law or father-in-law, husband or wife, children or any relative to 
whose support the member, member organization, or person associated 
with a member organization otherwise contributes directly or 
indirectly.
    Proposed Options 10, Section 17(c) permits a member, member 
organization, or person associated with a member organization that is 
acting as an investment adviser to receive compensation based on a 
share in

[[Page 52538]]

profits or gains in an account provided certain conditions are met. 
Specifically, the member or person associated with a member 
organization seeking such compensation obtains prior written 
authorization from the member or member organization employing the 
associated person; and such member, member organization, or person 
associated with a member organization seeking such compensation obtains 
prior written authorization from the customer; and all of the 
conditions in Rule 205-3 of the Investment Advisers Act of 1940 (as the 
same may be amended from time to time) are satisfied.
    This proposal would enable Phlx to better regulate profit sharing 
arrangements of member organizations, members, and persons associated 
with member organizations by clearly specifying the manner in which a 
member organization, member, or person associated with a member 
organization may share in the profits or losses in such an account, 
describing what activity is exempt from the direct proportionate share 
limitation of proposed paragraph (a)(3), and delineating within 
proposed paragraph (c) how a member organization, member, or person 
associated with a member organization that is acting as an investment 
adviser may receive compensation based on a share in profits or gains 
in an account. Today, Phlx General 9, Section 7, Report of Financial 
Arrangements, permits Phlx to learn of such arrangements. The proposed 
rule would enable Phlx to restrict the ability to profit share to 
certain limited circumstances, similar to FINRA.
General 9, Section 58
    The Exchange proposes to amend General 9, Section 58, 
Advertisements, Market Letters, Research Reports and Sales Literature, 
to amend the heading ``Supplementary Material'' to ``Supplementary 
Material to General 9, Section 58'' so the format of the heading is the 
same as other General 9 rules.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\17\ in general, and with 
Section 6(b)(5) of the Act,\18\ in particular, in that the proposal is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Options 10, Section 5
    The adoption of a new Options 10, Section 5, titled ``Branch 
Offices,'' is consistent with the Act and will protect investors and 
the public interest because the proposed rule explains the requirement 
to be qualified as a Registered Options Principal or General Securities 
Sales Supervisor and also explains when the requirement to be 
registered as such does not apply.\19\ General 9, Section 20, 
Supervision, does not offer the same specificity as proposed within 
Options 10, Section 5 with respect to branch offices, and General 9, 
Section 20 does not specifically apply only to members doing business 
with the public. The addition of this rule, similar to NOM and BX 
Options 10, Section 5, will permit Phlx to enforce the rule in a manner 
similar to NOM and BX by requiring certain qualifications for members 
doing business with the public. These qualifications for branch 
managers will protect investors and the public interest by ensuring 
branch offices are properly supervised by qualified individuals who 
will ensure compliance with the Exchange's rules. Today, Phlx General 4 
requires member organizations, members, and persons associated with a 
member organization to have certain qualifications when conducting 
certain activity. These qualifications are designed to ensure that 
individuals have the necessary knowledge and experience to supervise 
persons employed by the member organization at a branch office. 
Proposed Options 10, Section 5 specifically requires that members and 
member organizations that are doing business with the public maintain 
certain qualifications. Members and member organizations that are 
required to comply with Options 10, Section 5 now have transparent 
information to determine which of the qualifications apply to a manager 
of a branch office and when those qualification apply.
---------------------------------------------------------------------------

    \19\ The qualification requirement shall not apply to branch 
offices in which not more than three representatives are located so 
long as the OEF can demonstrate to the satisfaction of Phlx 
Regulation that the options activities of such branch offices are 
appropriately supervised by a Registered Options Principal or 
General Securities Sales Supervisor. See proposed Options 10, 
Section 5(b).
---------------------------------------------------------------------------

Options 10, Section 17
    Adopting a new Options 10, Section 17, Profit Sharing, similar to 
FINRA Rule 2150(c), Sharing in Accounts; Extent Permissible, is 
consistent with the Act. This proposal will protect investors and the 
public interest because it will clearly specify the way a member, 
member organization, or person associated with a member organization 
may share in the profits or losses in such an account. The proposal 
also will describe what activity is exempt from the direct 
proportionate share limitation of proposed paragraph (a)(3). Finally, 
the proposal will delineate within proposed paragraph (c) how a member, 
member organization, or person associated with a member organization 
that is acting as an investment adviser may receive compensation based 
on a share in profits or gains in an account. Members, member 
organizations, and persons associated with a member organization will 
have clear guidance on when profit sharing is permissible. Today, Phlx 
General 9, Section 7, Report of Financial Arrangements, permits Phlx to 
learn of such arrangements, and Phlx General 1, Section 1(c) does not 
permit members, member organizations, and persons associated with a 
member organization to engage in conduct inconsistent with just and 
equitable principles of trade. The proposed rule would enable Phlx to 
further restrict the ability to profit share in certain limited 
circumstances, similar to FINRA.
General 9, Section 58
    The Exchange's proposal to amend a heading within General 9, 
Section 58, Advertisements, Market Letters, Research Reports and Sales 
Literature, is a non-substantive rule change.

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.
Options 10, Section 5
    The Exchange's proposal to adopt a new Options 10, Section 5, 
titled ``Branch Offices,'' does not impose an undue burden on 
competition as all member organizations that conduct business with the 
public would be subject to the proposed rule.
Options 10, Section 17
    The Exchange's proposal to adopt a new Options 10, Section 17, 
Profit Sharing, similar to FINRA Rule 2150(c), Sharing in Accounts; 
Extent

[[Page 52539]]

Permissible, does not impose an undue burden on competition as all 
members, member organizations, and persons associated with member 
organizations that conduct business with the public would be subject to 
the proposed rule.
General 9, Section 58
    The Exchange's proposal to amend a heading within General 9, 
Section 58, Advertisements, Market Letters, Research Reports and Sales 
Literature, is a non-substantive rule change.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \20\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\21\
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2021-52 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-2021-52. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-Phlx-2021-52 and should be submitted on 
or before October 12, 2021.
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20325 Filed 9-20-21; 8:45 am]
BILLING CODE 8011-01-P


