[Federal Register Volume 75, Number 200 (Monday, October 18, 2010)]
[Notices]
[Pages 63876-63878]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26130]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63071; File No. SR-Phlx-2010-139]
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Floor Broker Responsibilities
October 8, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on October 5, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``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 Exchange Rule 1063, Responsibility
of Floor Brokers, and Option Floor Procedure Advice (``OFPA'') C-2,
Options Floor Broker Management System: to: (i) Require floor brokers
to enter specific identifying information on their orders; and (ii)
amend the current language applicable to the entry of clearing
information by floor brokers.
The text of the proposed rule change is available on the Exchange's
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings,
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 those statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to require floor brokers
to enter certain identifying information on their orders to enhance the
Exchange's audit trail to provide more specificity in identifying a
market participant's executing order. The Exchange is proposing to
require floor brokers \3\ to
[[Page 63877]]
enter certain alpha/numeric identifying information in addition to
their own account number.
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\3\ An Options Floor Broker (``Floor Broker'') is an individual
who is registered with the Exchange for the purpose, while on the
Options Floor, of accepting and executing options orders received
from members and member organizations. An Options Floor Broker shall
not accept an order from any other source unless he is the nominee
of a member organization qualified to transact business with the
public in which event he may accept orders from public customers of
the organization. See Exchange Rule 1060.
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Currently, floor brokers enter their own alpha/numeric
identification information,\4\ assigned by the Exchange, on the Options
Floor Broker Management System,\5\ for each order they receive and
represent in the trading crowd.\6\ Similarly, Advice F-1 requires ROTs
to enter their complete alpha/numeric identification assigned by the
Exchange on the FBMS for each order they receive in the trading crowd.
The Exchange is proposing to amend Exchange Rule 1063 and Option Floor
Procedure Advice C-2 to require Floor Brokers to enter alpha/numeric
identification for all orders entered on behalf of ROTs,\7\ not just
for orders they receive and represent themselves in a trading crowd.
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\4\ This is an identifying letter that is assigned by the
Exchange that follows the account number and identifies a Registered
Options Trader (``ROT''). A Registered Options Trader may have more
than one alpha/numeric.
\5\ The Options Floor Broker Management System (``FBMS'') is a
component of the Exchange's system designed to enable Floor Brokers
and/or their employees to enter, route and report transactions
stemming from options orders received on the Exchange. The FBMS also
is designed to establish an electronic audit trail for options
orders represented and executed by Floor Brokers on the Exchange,
such that the audit trial provides an accurate, time-sequenced
record of electronic and other orders, quotations and transactions
on the Exchange, beginning with the receipt of an order by the
Exchange, and further documenting the life of the order through the
process of execution, partial execution, or cancellation of that
order.
\6\ See Option Floor Procedure Advice F-1 titled Use of
Identification Letters and Numbers. Specialists and ROTs are also
required to comply with F-1 in addition to Floor Brokers.
\7\ A ROT includes a Streaming Quote Trader (``SQT''), a Remote
Streaming Quote Trader (``RSQT'') and a Non-SQT, which by definition
is neither a SQT or a RSQT. See Exchange Rule 1014 (b)(i) and (ii).
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Additionally, the Exchange is proposing to amend the timeframe
within which floor brokers enter certain clearing information into the
FBMS. Currently, a floor broker is required to contemporaneously upon
receipt of an order and prior to the representation of such an order
record the following specific information with respect to orders
represented by a floor broker into FBMS: (i) The order type (i.e.,
customer, firm, broker-dealer, professional); (ii) the option symbol;
(iii) buy, sell, cross or cancel; (iv) call, put, complex (i.e.,
spread, straddle), or contingency order as described in Rule 1066; (v)
number of contracts; (vi) limit price or market order or, in the case
of a complex order, net debit or credit, if applicable; (vii) whether
the transaction is to open or close a position; and (viii) The Options
Clearing Corporation (``OCC'') clearing number of the broker-dealer
that submitted the order (collectively, the ``required
information'').\8\
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\8\ The required information complies with the Consolidated
Options Audit Trail System (``COATS'') requirements. COATS
effectively enhances intermarket options surveillance by enabling
the options exchanges to reconstruct the market promptly to
effectively surveil certain rules. Through its participation in the
Intermarket Surveillance Group (``ISG''), the Exchange shares
information and coordinates inquiries and investigations with other
exchanges designed to address potential intermarket manipulation and
trading abuses. The Exchange's participation in ISG helps it to
satisfy the Exchange Act requirement that it have coordinated
surveillance with markets on which security futures are traded and
markets on which any security underlying security futures are traded
to detect manipulation and insider trading. ISG is an industry
organization formed in 1983 to coordinate intermarket surveillance
among the SROs by cooperatively sharing regulatory information
pursuant to a written agreement between the parties. The goal of the
ISG's information sharing is to coordinate regulatory efforts to
address potential intermarket trading abuses and manipulations.
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In addition, floor brokers or their employees are required to enter
clearing information onto the FBMS no later than five minutes after the
execution of the trade. The clearing information, which is the contra-
side clearing information, is not required to be entered pursuant to
COATS.\9\ Rather, this information facilitates the identification of
the trade for clearing.\10\ The Exchange proposes to amend the current
language to state any additional information with respect to the order
shall be inputted into the Exchange's systems contemporaneously upon
receipt, which may occur after the representation and execution of the
order.\11\
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\9\ This COATS requirement is not to be confused with the
requirement to submit the clearing information of the Broker-Dealer
that submitted the order.
\10\ Such clearing information includes the account number(s) of
each contra-side participant to the floor broker's trade in the
crowd and the number of contracts bought or sold. This information
would be immediately reported to the clearing firm of each crowd
participant involved in the trade.
\11\ See Chicago Board Options Exchange, Inc. (``CBOE'') Rule
6.24(a)(2) which contains similar language.
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The Exchange believes this amendment to the time, from a five
minute timer to a ``upon receipt'' requirement, is necessary to allow
floor brokers to enter the requisite clearing information. Currently,
certain types of trades that are handled in a trading crowd are being
entered upon receipt and prior to the expiration of the five minute
timer without incident. Other types of transactions which are received
by a floor broker from an upstairs firm \12\ which may involve Prime
Brokerage \13\ relationships may require additional time, beyond five
minutes, because the clearing information may not be readily
ascertainable. Likewise, complex orders with multiple legs can take
longer than five minutes to input into the FBMS system simply because
of the quantity of information that is required to be entered. The
Exchange believes that upon receipt means as soon as that clearing
information becomes available to a floor broker. That timeframe must be
reasonable and will be monitored by the Exchange's surveillance staff
to ensure such timing is not unreasonable.
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\12\ An ``upstairs firm'' is a broker-dealer, not located on the
trading floor that submits an order to a floor broker for execution.
The floor brokers typically are not affiliated with the ``upstairs
firms''.
\13\ Prime Brokerage is a mechanism for centralized securities
clearing at one facility which allows multiple execution
arrangements. A customer who has a Prime Brokerage account may have
accounts with multiple firms used for executing trades.
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The Exchange believes that this modification to the rules will
prevent a large number of change orders from floor brokers who are
concerned with meeting the current five minute timer and enter
information which is later found out to be inaccurate and a change
order is required. With the more reasonable timeframe, a floor broker
may properly enter the information the first time. Also, the additional
flexibility will allow floor brokers with complex orders to comply with
Exchange rules. Today, even if a floor broker begins to enter the
clearing information for a complex order immediately after the trade
was executed, they may run afoul of the five minute timer simply
because the information is too large in volume to physically input
within five minutes. This amendment would alleviate these concerns. The
Exchange does not anticipate a change in behavior for the remainder of
the floor brokers who are currently able to enter the clearing
information promptly upon execution and do so today.
The Exchange previously amended its rules to add the five minute
timer because once the clearing information is reported crowd
participants involved in the trade would receive a position update
enabling them to know their respective positions on a real-time basis
and to make appropriate informed and timely hedging transactional
decisions. The Exchange believes that this language will continue to
enable to allow Specialists and ROTs, in particular, to receive such
position updates going forward. Additionally, FBMS technology provided
to floor brokers offers them an efficient means to enter clearing
information for trade participants contemporaneously upon
[[Page 63878]]
receipt. This technology was not previously available.
The Exchange proposes this amendment to both Exchange Rule 1063 as
well as OFPA C-2, which is part of the minor rule plan.\14\
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\14\ The Exchange's minor rule plan consists of options floor
procedure advices (``OFPAs'' or ``Advices'') with preset fines,
pursuant to Rule 19d-1(c) under the Act. 17 CFR 240.19d-1(c). Most
OFPAs have corresponding options rules.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \15\ in general, and furthers the objectives of Section
6(b)(5) of the Act \16\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest, by requiring a floor broker to enter more specific
information to identify trades. This proposal would enhance the
Exchange's audit trail.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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Further, the Exchange believes that amending the language
concerning clearing information related to the contra-side of the trade
to require the information to be entered into FBMS contemporaneously
upon receipt on the Exchange is consistent with the language of other
exchanges and still allows for the timely entry of information for
clearing purposes.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (i) Does not
significantly affect the protection of investors or the public
interest; (ii) does not impose any significant burden on competition;
and (iii) by its terms, does not become operative for 30 days from the
date on which it was filed, or such shorter time as the Commission may
designate, if consistent with the protection of investors and the
public interest, it has become effective pursuant to Section
19(b)(3)(A) of the Act \17\ and Rule 19b-4(f)(6) thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the self-regulatory organization to submit to 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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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 e-mail to [email protected]. Please include
File Number SR-Phlx-2010-139 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2010-139. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2010-139 and should be
submitted on or before November 8, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26130 Filed 10-15-10; 8:45 am]
BILLING CODE 8011-01-P