2020-03413. Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Relocate Rules From Its Current Rulebook Into Its New Rulebook Shell  

  • Start Preamble February 14, 2020.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1] and Rule 19b-4 thereunder,[2] notice is hereby given that on February 3, 2020, 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.

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

    The Exchange proposes to relocate rules from its current Rulebook into its new Rulebook shell.

    The text of the proposed rule change is available on the Exchange's website at http://nasdaqphlx.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 purpose of this rule change is to relocate Phlx rules into the new Rulebook shell with some amendments to the shell.[3] The Exchange has already relocated options rules of its Affiliated Exchanges so that it may harmonize its rules, where applicable, across Nasdaq markets. The relocation and harmonization of the Phlx options rules is part of the Exchange's continued effort to promote efficiency and conformity of its processes with those of its Affiliated Exchanges. The Exchange believes that the placement of the Phlx Rules into their new location in the Start Printed Page 9860shell will facilitate the use of the Rulebook by members.

    Universal Changes

    The Exchange proposes to replace references to “Phlx XL”, “Phlx XL II”, “trading system” and “system” with the defined term “System” throughout the new rules. The Exchange proposes to replace the terms “specialist” and “Specialist” with the term “Lead Market Maker” to define this market participant throughout the Rulebook. The Exchange proposes to replace the terms “Remote Specialist” with the term “Remote Lead Market Maker” to define this market participant throughout the Rulebook. Any references to “Directed Specialist” shall be replaced with “Directed Lead Market Maker.” The Exchange proposes to replace the term “Registered Options Trader” with the term “Market Maker” to define this participant throughout the Rulebook. Any references to (“ROTs”) will be removed from the Rulebook. With respect to renaming the market participants, the Exchange notes that there are no changes to the roles and responsibilities of these market participants in connection with the name change.

    The Exchange proposes to change references to “Commentary” to “Supplementary Material” to conform the term throughout the Rulebook. The defined terms “Exchange Act” and “SEC” replaced the terms “Securities Exchange Act of 1934” and “Securities and Exchange Commission”, respectively.

    The Exchange proposes to update all cross-references within the Rule to the new relocated rule cites. The Exchange proposes to replace internal rule references to simply state “this Rule” where the rule is citing itself without a more specific cite included in the Rule. For example, if Phlx Rule 1014 refers currently to “Rule 1014” or “this Rule 1014” the Exchange will amend the phrase to simply “this Rule.” The Exchange proposes to conform numbering and lettering in certain rules to the remainder of the Rulebook. Finally, the Exchange proposes to delete any current Rules that are reserved in the Rulebook and add new reserved rules where other Nasdaq Affiliated Exchanges may have a rule in use and there is no comparable rule on Phlx.

    General 1

    The Exchange proposes to relocate definitions from Rule 1 into proposed General 1, Section 1, except for the term “Options Exchange Official,” which will be relocated into proposed Options 1, Section 1.

    General 2

    General 2 would be comprised of the following rules:

    Proposed new rule No.Current rule No.
    Section 1Reserved.
    Section 2Rule 52. Fees, Dues and Other Charges; Rule 924. Obligations of Members and Member Organizations to the Exchange; Rule 56. Effect of Suspension or Termination on Payment of Fees; and Rule 63. Effect of Suspension or Termination (re-titled “Fees, Dues and Other Charges”).
    Section 3Rule 651. Exchange's Cost of Defending Legal Proceedings.
    Section 4Rule 985. Affiliation of Ownership Restrictions.
    Section 5Reserved.
    Section 6Reserved.
    Section 7Reserved.
    Section 8Reserved.
    Section 9Reserved.
    Section 10Reserved.
    Section 11Reserved.
    Section 12Rule 926. The Exchange's Business Continuity and Disaster Recovery Plan Testing Requirements for Member Organizations and PSX Participants Pursuant to Regulation SCI (re-titled “Business Continuity and Disaster Recovery”).
    Section 13Reserved.
    Section 14Rule 990. Additional Requirements for Securities Listed on the Exchange Issued by Nasdaq or its Affiliates.
    Section 15Reserved.
    Section 16Reserved.
    Section 17Rule 1015. Accommodations.
    Section 18Rule 57. Members' Contracts and Rule 58. Exchange Contracts (re-titled “Contracts”).
    Section 19Rule 59. Deliveries through Registered Clearing Agencies.
    Section 20Rule 62. Disapproval of Business.
    Section 21Rule 64. Office Vacated by Suspension or Termination.
    Section 22Rule 1094. Sponsored Participants.

    The Exchange proposes to reserve those sections where Phlx does not have rules similar to other Nasdaq Affiliated Markets.

    General 3

    The Exchange proposes to relocate the following rules into General 3, “Membership and Access.”

    Proposed new rule No.Current rule No.
    Section 1Rule 910. Qualification as Member Organization.
    Section 2Rule 901. Denial of and Conditions to Membership.
    Section 3Reserved.
    Section 4Reserved.
    Section 5Rule 900.2. Membership Applications.
    Section 6Reserved.
    Section 7Rule 600. Registration.
    Section 8Rule 602. Status Verification.
    Section 9Rule 900. Administration of Rules by Membership Department.
    Start Printed Page 9861
    Section 10Rule 900.1. General Powers and Duties of Membership Department.
    Section 11Rule 908. Rights and Privileges of A-1 Permits.
    Section 12Rule 911. Member and Member Organization Participation.
    Section 13Rule 921. Qualification; Designation of Executive Representative.
    Section 14Rule 912. Transfer of Accounts.
    Section 15Rule 922. Certificate of Incorporation.
    Section 16Rule 923. Review of Membership Department Decisions.

    The Exchange proposes to delete Rule 900 as unnecessary given the new Rulebook organization structure. The Exchange proposes to delete current Rule 900.2(e) within proposed General 3, Section 5, because Rule 798 is currently reserved and that provision is no longer applicable.

    General 9

    The Exchange proposes to adopt a new General 9, titled “Regulation.” The Exchange proposes to relocate the following rules into General 9:

    Proposed new rule No.Current rule No.
    Section 1Rule 765. Prohibition Against Trading Ahead of Customer Orders and Rule 782. Manipulative Operations (re-titled “General Standards”).
    Section 2Rule 741. Customers' Securities and Rule 771. Excessive Trading of Members (re-titled Customers' Securities and Excessive Trading of Members”).
    Section 3Reserved.
    Section 4Reserved.
    Section 5Reserved.
    Section 6Reserved.
    Section 7Rule 783. Report of Financial Arrangements.
    Section 8Reserved.
    Section 9Reserved.
    Section 10Rule 763. Recommendations to Customers (Suitability).
    Section 11Rule 764. Best Execution and Interpositioning.
    Section 12Reserved.
    Section 13Reserved.
    Section 14Reserved.
    Section 15Reserved.
    Section 16Reserved.
    Section 17Reserved.
    Section 18Reserved.
    Section 19Rule 754. Discretionary Power as to Customers' Accounts.
    Section 20Rule 748. Supervision Rule.
    Section 21761. Supervisory Procedures Relating to ITSFEA and to Prevention of Misuse of Material Nonpublic Information.
    Section 22Reserved.
    Section 23Reserved.
    Section 24Reserved.
    Section 25Rule 751. Accounts of Employees of Member Organizations.
    Section 26Reserved.
    Section 27Reserved.
    Section 28Reserved.
    Section 29Rule 749. Transactions for Employees of Exchange, etc. and Rule 750. Speculative Transactions for Employees of Certain Employers (re-titled “Transactions for Employees and Speculative Transactions for Employees of Certain Employers”).
    Section 30Reserved.
    Section 31Reserved.
    Section 32Reserved.
    Section 33Reserved.
    Section 34Reserved.
    Section 35Rule 2040. Nonregistered Foreign Finders.
    Section 36Reserved.
    Section 37Reserved.
    Section 38Reserved.
    Section 39Rule 705. Fidelity Bonds.
    Section 40Reserved.
    Section 41Reserved.
    Section 42Reserved.
    Section 43Reserved.
    Section 44Reserved.
    Section 45Reserved.
    Section 46Reserved.
    Section 47Reserved.
    Section 48Reserved.
    Section 50Reserved.
    Section 51Reserved.
    Section 52Reserved.
    Start Printed Page 9862
    Section 53Rule 774. Disruptive Quoting and Trading Activity Prohibited.
    Section 54Rule 777. Guarantees Not Permitted.
    Section 55Rule 601. Office, Other Than Main Offices.
    Section 56Rule 602. Status Verification.
    Section 57Rule 603. Control of Offices.
    Section 58Rule 605. Advertisements, Market Letters, Research Reports and Sales Literature.
    Section 59Rule 610. Notification of Changes in Business Operations.
    Section 60Rule 625. Training.
    Section 61Rule 704. Assignment of Interest of Partner.
    Section 62Rule 745. Partial Payments.
    Section 63Rule 746. Diligence as to Accounts.
    Section 64Rule 747. Approval of Accounts.
    Section 65Rule 752. Statements to Be Sent to Customers.
    Section 66Rule 753. Notwithstanding Power of Attorney.
    Section 67Rule 773. Participation in Joint Accounts.
    Section 68Rule 784. Report of Options.
    Section 69Rule 786. Periodic Reports.
    Section 70Rule 796. Underwriting of Securities by Member Organizations.

    Equities 7

    The Exchange proposes to relocate Rule 607 titled “Covered Sales Fee” to Equities 7, Equity Pricing at new proposed Section 5.[4] Also, Rule 2040, Nonregistered Foreign Finders, does not appear in PSX Rule 3202, this rule applies to equity products today. The Exchange believes its failure to be included within PSX Rule 3202 was an oversight and proposes to include this Rule within General 9.

    Options 1

    The Exchange proposes to rename current Options 1 from “Options Definitions” to “General Provisions.” The Exchange proposes to relocate definitions from Rule 1000, Applicability, Definitions and References, into proposed General 1, Section 1. The Exchange proposes not to relocate the terms “System Book Feed” and “System Securities” from Rule 1000 into Options 1, Section 1. The term “System Book Feed” is not utilized in the Rulebook currently. The term “System Securities” is only utilized within the definition of the term “System” at proposed Options 1, Section 1(a)(52) and within current Rule 911 which was relocated to General 2, Section 12. The term is simply replaced by referring to option series. The Exchange believes that replacing the term with the term “option series” will make the Rulebook clear. The Exchange also proposes to relocate the definition of “Option Exchange Official” which is currently located in General I, Section 1 into this section as this term relates to the trading of options.

    Options 2

    The Exchange proposes to rename Options 2 from “Options Trading Rules” to “Options Market Participants” and relocate the following rules into this chapter:

    Proposed new rule No.Current rule No.
    Section 1Rule 507. Application for Approval as an SQT, RSQT, or RSQTO and Assignment in Options.
    Section 2Reserved.
    Section 3Rule 506. Allocation Application, Allocation, Reallocation, and Transfer; Rule 508. Transfer Application; and Rule 513. Voluntary Resignation of Options Privileges (re-titled “Allocation Application, Allocation, Reallocation, Transfer and Voluntary Resignation”.
    Section 4Rule 1014. Obligations of Market Makers (a-d).
    Section 5Rule 1081. Electronic Market Maker Obligations and Quoting Requirements.
    Section 6Rule 1014. Obligations of Market Makers, subparagraph (e) only.
    Section 7Rule 1022. Securities Accounts and Orders of Specialists and Registered Options Traders.
    Section 8Reserved.
    Section 9Rule 510. Good Standing for Specialist, SQT, and RSQT.
    Section 10Rule 1068. Directed Orders.
    Section 11Rule 501. Specialist Appointment.
    Section 12Rule 1020. Registration and Functions of Options Specialists.
    Section 13Rule 1036. Affiliated Persons Of Specialists.
    Section 14Rule 175. Limitations on Options Market Making.

    The Exchange proposes to relocate a portion of a sentence from current Rule 1014(b) to Options 8, Section 11(b). The sentence provides, “. . . Exchange options transactions initiated by such Market Maker on the Trading Floor for any account in which he had an interest shall to the extent prescribed by the Exchange be in such assigned classes.” This sentence is being relocated into Options 8, Section 11 because it pertains to Floor Market Maker assignments. The remainder of current Rule 1014(b) was relocated to Options 3, Section 4(b).

    Rule 452, “Limitations on Members' Trading Because of Customers' Orders” is being relocated into Options 8, Section 17.Start Printed Page 9863

    Options 2A

    The Exchange proposes to reserve Options Section 2A.

    Options 3

    The Exchange proposes to rename Options 3 from “Options Market Participants” to “Options Trading Rules” and relocate the following rules into this chapter:

    Proposed new rule No.Current rule No.
    Section 1Rule 101. Hours of Business.
    Section 2Rule 1013. Units of Trading and Rule 1067. Precedence of Highest Bid and Lowest Offer (re-titled “Units of Trading”).
    Section 3Rule 1034. Minimum Increments.
    Section 4Rule 1019. Entry and Display of Quotes.
    Section 5Rule 1096. Entry and Display of Orders.
    Section 6Rule 1082. Firm Quotations, except Rule 1082(a)(ii)(C).
    Section 7Rule 1080. Electronic Acceptance of Quotes and Orders.
    Section 8Rule 1017. Openings In Options.
    Section 9Rule 1047. Trading Halts.
    Section 10Rule 1089. Electronic Execution Priority and Processing in the System and Rule 1035. Zero-Bid Option Series (this rule will remain titled “Electronic Execution Priority and Processing in the System”).
    Section 11Reserved.
    Section 12Rule 1088. Qualified Contingent Cross Order (re-titled “Electronic Qualified Contingent Cross Order”).
    Section 13Rule 1087. Price Improvement XL (“PIXL”).
    Section 14Rule 1098(a)-(f) Complex Orders on the System (re-titled “Complex Orders”).
    Section 15Rule 1099. Risk Protections (re-titled “Simple Risk Protections).
    Section 16Rule 1098(g)-(j) to be titled “Complex Orders Risk Protections”.
    Section 17Rule 1073. Kill Switch.
    Section 18Rule 1074. Detection of Loss of Communication.
    Section 19Rule 1090. Mass Cancellation of Trading Interest.
    Section 20Rule 1092. Nullification and Adjustment of Options Transactions including Obvious Errors.
    Section 21Rule 1016. Exchange Sharing of Phlx XL Participant-Designated Risk Settings (re-titled as “Access to and Conduct on Phlx”).
    Section 22Rule 1097. Limitations on Order Entry.
    Section 23Rule 1070. Data Feeds and Trade Information.
    Section 24Rule 128. Price of Execution Binding.
    Section 25Reserved.
    Section 26Rule 1082(a)(ii)(C) to be titled “Message Traffic Mitigation”.
    Section 27Rule 652. Limitation of Exchange Liability and Reimbursement of Certain Expenses.
    Section 28Reserved.

    Options 4

    The Exchange proposes to relocate rules within Options 4 Options Listing Rules as follows:

    Proposed new rule No.Current rule No.
    Section 1Rule 1007. Designation Of Securities.
    Section 2Rule 1008. Rights And Obligations Of Holders And Writers.
    Section 3Rule 1009. Criteria for Underlying Securities/Rule 1011. Option Contracts To Be Traded.
    Section 4Rule 1010. Withdrawal of Approval of Underlying Securities or Options.
    Section 5Rule [sic]. Series of Options Open for Trading.
    Section 6Reserved.
    Section 7Reserved.
    Section 8Reserved.
    Section 9Reserved.
    Section 10Rule 99. Backup Trading Arrangements.
    Section 11Rule 1057. U.S. Dollar-Settled Foreign Currency Option Closing Settlement Value.

    Rule text within current Commentary .01(6) of Rule 1010, which provides, “. . . provided, however, that in the case of a Restructure Security approved for options listing and trading under paragraph (d) of Commentary .05 under Rule 1009, such trading volume requirements must be satisfied based on the trading volume history of the Restructure Security.”

    Options 4A

    The Exchange proposes to relocate rules within new proposed Options 4A, which is proposed to be titled “Options Index Rules” as follows:

    Start Printed Page 9864
    Proposed new rule No.Current rule No.
    Section 1Rule 1000A. Applicability and Definitions (paragraph (a)).
    Section 2Rule 1000A. Applicability and Definitions (paragraph (b)).
    Section 3Rule 1009A. Designation of the Index.
    Section 4Reserved.
    Section 5Rule 1100A. Dissemination of Information.
    Section 6Rule 1001A. Position Limits.
    Section 7Reserved.
    Section 8Reserved.
    Section 9Reserved.
    Section 10Rule 1002A. Exercise Limits.
    Section 11Reserved.
    Section 12Rule 1101A. Terms of Option Contracts.
    Section 13Reserved.
    Section 14Reserved.
    Section 15Rule 1042A. Exercise of Option Contracts.
    Section 16Reserved.
    Section 17Rule 1006A. Other Restrictions on Options Transactions and Exercises.
    Section 18Rule 1047A. Trading Rotations, Halts or Reopenings.
    Section 19Rule 1102A. Limitation of Exchange Liability.
    Section 20Rule 1105A. Standard & Poor's® Index.
    Section 21Rule 1107A. Nasdaq, Inc. Indexes.

    The Exchange proposes to amend the rule text within Options 4A, Section 18(b) to remove the word “Specialist” and replace that word with “Exchange” and cite to the manual authority within current Rule 1047(b). The Exchange previously removed any functionality which permitted executions to be manually handled by a specialist.[5] An Options Exchange Official determines a manual trading halt.

    Options 4B

    The Exchange proposes a new Options 4B, titled “Options on Treasury Securities.”

    Proposed new rule No.Current rule No.
    Section 1Rule 1000D. Applicability of 1000D Series—Treasury Securities Options.
    Section 2Rule 1001D. Definitions—Treasury Securities Options.
    Section 3Rule 1002D. Position Limits—Treasury Securities Options.
    Section 4Rule 1003D. Exercise Limits—Treasury Securities Options.
    Section 5Rule 1004D. Reports Related to Position Limits and Liquidation of Positions—Treasury Securities Options.
    Section 6Rule 1005D. Reports Related to Position Limits and Liquidation of Positions—Treasury Securities Options.
    Section 7Rule 1006D. Criteria for Securities Underlying Treasury Securities Options.
    Section 8Rule 1007D. Withdrawal of Approval of Underlying Treasury Securities or Options.
    Section 9Rule 1008D. Terms of Treasury Securities Options.
    Section 10Rule 1009D. Series of Treasury Securities Options Open for Trading.
    Section 11Rule 1010D. Days and Hours of Business of Treasury Securities Options.
    Section 12Rule 1011D. Trading Rotations—Treasury Securities Options.
    Section 13Rule 1012D. Trading Halts and Suspension of Trading, Obvious and Catastrophic Errors—Treasury Securities Options.
    Section 14Rule 1013D. Minimum Increment and Meaning of Premium Bids and Offers for Treasury Securities Options.
    Section 15Rule 1014D. Specialist and Registered Option Trader Obligations and Electronic Trading—Treasury Securities Options.
    Section 16Rule 1015D. Accommodation Trading—Treasury Securities Options.
    Section 17Rule 1016D. Reconciliation of Unmatched Trades—Treasury Securities Options.
    Section 18Rule 1018D. Limit Book for Treasury Securities Options.
    Section 19Rule 1019D. Bid/Ask Differentials—Treasury Securities Options.
    Section 20Rule 1020D. Allocation of Exercise Assignment Notices—Treasury Securities Options.
    Section 21Rule 1021D. Delivery and Payment—Treasury Securities Options.
    Section 22Rule 1022D. Margin Requirements—Treasury Securities Options.
    Section 23Rule 1023D. Furnishing of Books, Records and Other Information—Treasury Securities Options.
    Section 24Rule 1024D. Communication Links—Treasury Securities Options.
    Section 25Rule 1025D. Doing Business With the Public—Treasury Securities Options.

    Options 5

    The Exchange proposes to rename Options 5 from “Options Trade Administration” to “Order Protection and Locked and Crossed Markets” and relocate rules within Options 5 as follows:

    Start Printed Page 9865
    Proposed new rule No.Current rule No.
    Section 1Rule 1083. Order Protection; Locked and Crossed Markets.
    Section 2Rule 1084. Order Protection.
    Section 3Rule 1086. Locked and Crossed Markets.
    Section 4Rule 1093. Away Markets and Order Routing (re-titled “Order Routing”).
    Section 5Rule 1091. Cancellation of Orders and Error Account.

    Options 6

    The Exchange proposes rename Options 6 from “Order Protection and Locked and Cross Markets” to “Options Trade Administration” and relocate rules within Options 6 as follows:

    Proposed new rule No.Current rule No.
    Section 1Rule 1037. Authorization to Give Up.
    Section 2Rule 1052. Responsibility Of Clearing Members For Exchange Options Transactions.
    Section 3Rule 1051. General Comparison And Clearance Rule.
    Section 4Reserved.
    Section 5Rule 1058. Transfer of Positions.
    Section 6Rule 1045. Off-Exchange RWA Transfers.
    Section 7Rule 1059. In-Kind Exchange of Options Positions and ETF Shares.
    Section 8Rule 1046. Clearing Arrangements.
    Section 9Rule 1048. Stock Transfer Tax.
    Section 10Rule 1053. Filing Of Trade Information.
    Section 11Rule 1054. Verification Of Trades And Reconciliation Of Uncompared Trades.
    Section 12Rule 1055. Reporting Of Compared Trades To Options Clearing Corporation.
    Section 13Rule 1056. Maintaining Office And Filing Signatures.

    Options 6A

    The Exchange proposes to relocate rules within new proposed Options 6A titled “Closing Transactions” as follows:

    Proposed new rule No.Current rule No.
    Section 1Rule 1041. Options Contracts Of Suspended Members.
    Section 2Rule 1040. Failure To Pay Premium.

    Options 6B

    The Exchange proposes to relocate rules within new proposed Options 6B titled “Exercises and Deliveries” as follows:

    Proposed new rule No.Current rule No.
    Section 1Rule 1042. Exercise Of Equity Option Contracts.
    Section 2Rule 1043. Allocation of Exercise Notices.
    Section 3Rule 1044. Delivery and Payment.

    Options 6C

    The Exchange proposes to relocate rules within new proposed Options 6C titled “Margins” as follows:

    Proposed new rule No.Current rule No.
    Section 1Reserved.
    Section 2Reserved.
    Section 3Rule 721. Proper and Adequate Margin.
    Section 4Reserved.
    Section 5Reserved.
    Section 6Reserved.
    Section 7Rule 723. Prohibition on Free-Riding in Cash Accounts.
    Start Printed Page 9866

    Options 6D

    The Exchange proposes to relocate rules within new proposed Options 6D titled “Net Capital Requirements” as follows:

    Proposed new rule No.Current rule No.
    Section 1Rule 703. Financial Responsibility and Reporting.
    Section 2Reserved.
    Section 3Reserved.
    Section 4Reserved.

    Options 6E

    The Exchange proposes to relocate rules within new proposed Options 6E titled “Records, Reports and Audits” as follows:

    Proposed new rule No.Current rule No.
    Section 1Rule 760. Maintenance, Retention and Furnishing of Books, Records and Other Information.
    Section 2Rule 1003. Reporting Of Options Positions.
    Section 3Reserved.
    Section 4Rule 712. Independent Audit.
    Section 5Rule 785. Automated Submission of Trading Data.
    Section 6Reserved.
    Section 7Rule 980. Regulatory Services Agreements.
    Section 8Reserved.
    Section 9Reserved.

    The commentary section in Rule 760 has been relocated to Options 6E, Section 1(b).

    Options 7

    The Exchange proposes to relocate Rule 607 titled “Covered Sales Fee to Options 7, Options Pricing, at new proposed Section 12.[6]

    Options 8

    Rule 110, “Bids and Offers—Manners,” Rule 119, “Precedence of Highest Bid” and Rule 120, “Precedence of Offers at Same Price” are being relocated within the Supplementary Material to Options 8, Section 24, “Bids and Offers—Premium”.

    The Exchange proposes to remove references to Rule 723 as this rule no longer exists. The Exchange also proposes to remove obsolete rule text at the end of Options 8, Section 39 at C-2, Options Floor Based Management System, which provides, “The Exchange anticipates that it will implement the Snapshot feature referenced herein and described further in Options 8, Section 28(e) during the Fourth Quarter of 2017. The Exchange will notify members via an Options Trader Alert, to be posted on the Exchange's website, at least seven calendar days prior to the date when Snapshot will be available for use.

    Options 9

    The Exchange proposes to relocate rules within new proposed Options 9 titled “Business Conduct” as follows:

    Start Printed Page 9867
    Proposed new rule No.Current rule No.
    Section 1Rule 707. Conduct Inconsistent with Just and Equitable Principles of Trade.
    Section 2Reserved.
    Section 3Reserved.
    Section 4Reserved.
    Section 5Rule 708. Acts Detrimental to the Interest or Welfare of the Exchange.
    Section 6Reserved.
    Section 7Reserved.
    Section 8Reserved.
    Section 9Reserved.
    Section 10Reserved.
    Section 11Reserved.
    Section 12Reserved.
    Section 13Rule 1001. Position Limits.
    Section 14Reserved.
    Section 15Rule 1002. Exercise Limits.
    Section 16Reserved.
    Section 17Rule 1004. Liquidation Of Positions.
    Section 18Rule 1005. Limit On Uncovered Short Positions.
    Section 19Rule 1006. Other Restrictions on Exchange Options Transactions and Exercises.
    Section 20Reserved.
    Section 21Rule 757. Anti-Money Laundering Compliance Program.
    Section 22Reserved.
    Section 23Reserved.
    Section 24Rule 1050. Violation Of By-Laws And Rules Of Options Clearing Corporation.

    Options 10

    The Exchange proposes to relocate rules within new proposed Options 10 titled “Doing Business with the Public” as follows:

    Proposed new rule No.Current rule No.
    Section 1Reserved.
    Section 2Rule 1024. Conduct of Accounts for Options Trading subparagraph (a) (re-titled “Registration of Options Principals”).
    Section 3Reserved.
    Section 4Reserved.
    Section 5Reserved.
    Section 6Rule 1024. Conduct of Accounts for Options Trading subparagraph (b) (re-titled “Opening of Accounts”).
    Section 7Rule 1025. Supervision of Accounts.
    Section 8Rule 1026. Suitability.
    Section 9Rule 1027. Discretionary Accounts.
    Section 10Rule 1028. Confirmations and Complaints subparagraph (a) (re-titled “Confirmations to Customers”).
    Section 11Rule 1032. Statements of Accounts.
    Section 12Reserved.
    Section 13Rule 1029. Delivery of Options Disclosure Documents.
    Section 14Rule 742. Restrictions on Pledge of Customers' Securities.
    Section 15Reserved.
    Section 16Reserved.
    Section 17Reserved.
    Section 18Reserved.
    Section 19Reserved.
    Section 20Rule 1049. Options Communications.
    Section 21Reserved.
    Section 22Rule 1028. Confirmations and Complaints subparagraph (b) (re-titled “Customer Complaints”).
    Section 23Rule 762. Telemarketing.
    Section 24Rule 1030. Transactions With Issuers.
    Section 25Rule 1031. Restricted Stocks.

    The Exchange proposes to reserve Options 10, Sections 24 and 25. The Commentary section in Phlx Rules 1027 is being relocated to Section (f) within Options 10, Section 9. The Commentary section in Phlx Rules 1028 is being relocated to Section (f) within Options 10, Section 22.

    Options 11

    Finally, the Exchange proposes to relocate the Options Minor Rule Violations into Options 11 titled “Minor Rule Plan Violations” as follows:

    Proposed new rule No.Current rule No.
    Section 1A-1 Specialist as ROT.
    Section 2F-1 Option Quote Parameters.
    Start Printed Page 9868
    Section 3F-2 Failure to Comply with an Exchange Inquiry.
    Section 4F-3 Affiliations.
    Section 5F-4 Unusual Market Conditions.
    Section 6F-5 Supervisory Procedures Relating to ITSFEA.
    Section 7F-6 Minor Infractions of Position/Exercise Limits and Hedge Exemptions.
    Section 8F-7 Clearing Agents' Responsibility for Carrying Positions in Market Maker Accounts.
    Section 9F-8 Options Exchange Official Rulings.
    Section 10F-9 Failure to Provide Notification of Changes in Business Operations.
    Section 11F-10 Failure to Timely Submit Amendments to Form U4, Form U5 and Form BD.
    Section 12F-11 Violations of Exercise and Exercise Advice Rules for Noncash-Settled Equity Option Contracts.
    Section 13G-1 Index Option Exercise Advices.

    PSX Rules [7]

    Rule 133, “Trading Halts Due to Extraordinary Market Volatility” is being relocated to new PSX Rule 3101 as this rule is solely an equities rule. Rule 652, “Limitation of Exchange Liability and Reimbursement of Certain Expenses” is being relocated into new PSX Rule 3102.[8] Rule 103, “Dealings on the Exchange—Securities” is being relocated to new PSX Rule 3400. Rule 112, “Bids and Offers—“When Issued” ” is being relocated to new PSX Rule 3401. Rule 128, “Price of Execution Binding” is being relocated to new PSX Rule 3402.[9] Rule 274, “Payment on Delivery—Collect on Delivery” is being relocated to new PSX Rule 3403.[10] Rule 279, “Book-Entry Settlement” is being relocated to new PSX Rule 3404. Rule 431, “Ex-dividend, Ex-rights” is being relocated into new PSX Rule 3405. Rule 432, “Ex-warrants” is being relocated into new PSX Rule 3406. Rule 433, “Buyer Entitled to Dividend, etc.” is being relocated into new PSX Rule 3407. Rule 434, “Claims for Dividend, etc.” is being relocated into new PSX Rule 3408. Rule 451, “Taking or Supplying Securities Named in Order” is being relocated into new PSX Rule 3409. Rule 452, “Limitations on Members' Trading Because of Customers' Orders” is being relocated into new PSX Rule 3410.[11] Rule 453, “Successive Transactions by Members” is being relocated into new PSX Rule 3411. Rule 455, “Short Sales” is being relocated into new PSX Rule 3412. Rule 721, “Proper and Adequate Margin” is being relocated into new PSX Rule 3413.[12] Rule 723, “Prohibition on Free-Riding in Cash Accounts” is being relocated into new PSX Rule 3414.[13] Rule 703, “Financial Responsibility and Reporting” is being relocated into new PSX Rule 3500.[14] Rule 712, “Independent Audit” is being relocated into new PSX Rule 3501.[15] Rule 785, “Automated Submission of Trading Data” is being relocated into new PSX Rule 3502.[16] Rule 707, “Conduct Inconsistent with Just and Equitable Principles of Trade” is being relocated into Rule 3503.[17] Rule 708, “Acts Detrimental to the Interest or Welfare of the Exchange” is being relocated into Rule 3504.[18] Rule 742, “Restrictions on Pledge of Customers' Securities” is being relocated into new PSX Rule 3505.[19] Rule 757, “Anti-Money Laundering Compliance Program” is being relocated into new PSX Rule 3506.[20] Rule 762, “Telemarketing” is being relocated into new PSX Rule 3507.[21] Rule 980, “Regulatory Services Agreements” is being relocated into new PSX Rule 3600.[22]

    The Exchange also proposes to amend PSX Rule 3202 to remove rules that: (1) Have been relocated into a general section and are therefore applicable to equities; (2) have been relocated into the PSX Rules or Equity 7; (3) which are reserved rules; and (4) remove references to Rule 623 (Fingerprinting), Rule 722 (Miscellaneous Securities Margin Accounts) and Rule 772 (Trading for Joint Account) as these rules do not exist in the Phlx Rulebook.

    Equity Titles

    The Exchange proposes to amend the current titles of Equity 2, 3, 4 and 7. The Exchange proposes to rename Equity 2, from “Equity Trading Rules” to “Equity Market Participants.” The Exchange proposes to rename Equity 3 from “Equity Market Participants” to “Equity Trading Rules.” The Exchange proposes to rename Equity 4 from “Equity Listing Rules” to “Limit Up-Limit Down”. Finally, the Exchange proposes to reserve Equity 6 which is currently titled “Limit Up-Limit Down.”

    2. Statutory Basis

    The Exchange believes that its proposal is consistent with Section 6(b) of the Act,[23] in general, and furthers the objectives of Section 6(b)(5) of the Act,[24] in particular, in that it is designed to promote just and equitable principles of trade and to protect investors and the public interest by bringing greater transparency to its rules by relocating its Rules into the new Rulebook shell together with other rules which have already been relocated. The Exchange's proposal is consistent with the Act and will protect investors and the public interest by harmonizing its rules, where Start Printed Page 9869applicable, across Nasdaq markets so that members can readily locate rules which cover similar topics. The relocation and harmonization of the Phlx Rules is part of the Exchange's continued effort to promote efficiency and conformity of its processes with those of its Affiliated Exchanges. The Exchange believes that the placement of the Phlx Rules into their new location in the shell will facilitate the use of the Rulebook by members. Specifically, the Exchange believes that market participants that are members of more than one Nasdaq market will benefit from the ability to compare Rulebooks.

    The Exchange is not substantively amending rule text unless noted otherwise within this rule change. The renumbering, re-lettering, deleting reserved rules, amending cross-references and other minor technical changes will bring greater transparency to Phlx's Rules. The Exchange intends to file other rule change to relocate Affiliated Exchange Rulebooks to relocate corresponding rules into the same location in each Rulebook for ease of reference. The Exchange believes its proposal will benefit investors and the general public by increasing the transparency of its Rulebook and promoting easy comparisons among the various Nasdaq Rulebooks.

    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. The Exchange believes that the proposed amendments do not impose an undue burden on competition because the amendments to relocate the Rules are non-substantive. This rule change is intended to bring greater clarity to the Exchange's Rules. Renumbering, re-lettering, deleting reserved rules and amending cross-references will bring greater transparency to Phlx's Rules.

    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) of the Act [25] and Rule 19b-4(f)(6) thereunder.[26]

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the Act [27] normally does not become operative for 30 days after the date of its filing. However, Rule 19b-4(f)(6)(iii) [28] permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay so that the Exchange could immediately relocate its rules. According to the Exchange, the proposal is intended to make it easier for members to locate the various Exchange rules, and is part of a larger effort to reorganize the Exchange's rules and those of its Affiliated Exchanges. For these reasons, the Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the operative delay and designates the proposed rule change operative upon filing.[29]

    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 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

    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-2020-03. 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-2020-03, and should be submitted on or before March 12, 2020.

    Start Signature

    For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[30]

    Jill M. Peterson,

    Assistant Secretary.

    End Signature End Preamble

    Footnotes

    3.  Previously, the Exchange added a shell structure to its Rulebook with the purpose of improving efficiency and readability and to align its rules closer to those of its five sister exchanges, Nasdaq BX, Inc.; Nasdaq PHLX LLC; The Nasdaq Stock Market LLC; Nasdaq GEMX, LLC; and Nasdaq MRX, LLC (“Affiliated Exchanges”). The shell structure currently contains eight (8) Chapters which, once complete, will apply a common set of rules to the Affiliated Exchanges. See Securities Exchange Act Release No. 82169 (November 29, 2017), 82 FR 57508 (December 5, 2017) (SR-Phlx-2017-97).

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    4.  Rule 607 is both and options and equities rule and is therefore being replicated in both Equity 7 and Options 7.

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    5.  Manual execution by a specialist could previously occur in AUTOM, a prior exchange system. Specialist manual handling is obsolete. AUTOM and AUTO-X were replaced by Phlx XL, which is now defined as “System”. See Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59).

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    6.  Rule 607 is both and options and equities rule and is therefore being replicated in both Equity 7 and Options 7.

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    7.  PSX Rule 3202 currently notes rules which are incorporated by reference into PSX Rules. The rules within this section which are being relocated are currently part of the PSX Rules today.

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    8.  Rule 652 is also being replicated into Options 3, Section 27 as this rule applies to both equities and options.

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    9.  Rule 128 is being replicated within Options 3, Section 24 and also within the PSX Rules as this rule applies to both equities and options.

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    10.  The Exchange is eliminating rule text related to the effective date of the rule. This language is obsolete. The Supplementary Material is being relocated to the main body of the Rule.

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    11.  Rule 452, “Limitations on Members' Trading Because of Customers' Orders” is also being relocated into Options 8, Section 17. The Supplementary Material is being relocated to the main body of the Rule.

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    12.  Rule 721 is being replicated within Options 6C, Section 3 and also within the PSX Rules as this rule applies to both equities and options.

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    13.  Rule 723 is being replicated within Options 6C, Section 7 and also within the PSX Rules as this rule applies to both equities and options.

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    14.  Rule 703 is being replicated within Options 6D, Section 1 and also within the PSX Rules as this rule applies to both equities and options.

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    15.  Rule 712 is being replicated within Options 6E, Section 4 and also within the PSX Rules as this rule applies to both equities and options.

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    16.  Rule 785 is being replicated within Options 6E, Section 5 and also within the PSX Rules as this rule applies to both equities and options.

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    17.  Rule 707 is being replicated within Options 9, Section 1 and also within the PSX Rules as this rule applies to both equities and options.

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    18.  Rule 708 is being replicated within Options 9, Section 5 and also within the PSX Rules as this rule applies to both equities and options.

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    19.  Rule 742 is being replicated within Options 10, Section 14 and also within the PSX Rules as this rule applies to both equities and options.

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    20.  Rule 757 is being replicated within Options 9, Section 21 and also within the PSX Rules as this rule applies to both equities and options.

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    21.  Rule 762 is being replicated within Options 10, Section 23 and also within the PSX Rules as this rule applies to both equities and options.

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    22.  Rule 980 is being replicated within Options 6E, Section 7 and also within the PSX Rules as this rule applies to both equities and options.

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    26.  17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of 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.

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    29.  For purposes only of waiving the 30-day operative delay, the Commission also has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).

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    [FR Doc. 2020-03413 Filed 2-19-20; 8:45 am]

    BILLING CODE 8011-01-P

Document Information

Published:
02/20/2020
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
2020-03413
Pages:
9859-9869 (11 pages)
Docket Numbers:
Release No. 34-88213, File No. SR-Phlx-2020-03
PDF File:
2020-03413.pdf