[Federal Register Volume 75, Number 221 (Wednesday, November 17, 2010)]
[Notices]
[Pages 70331-70335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-28900]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63305; File No. SR-Phlx-2010-153]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing of Proposed Rule Change To Update and Streamline the Process for
Specialist Evaluations and Clarify the Time Within Which SQTs and RSQTs
Begin To Electronically Quote After Assignment
November 10, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on November 5, 2010, NASDAQ OMX PHLX LLC (``Phlx''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposal to amend Phlx
By-Law Article XI (Appeals) Section 11-1; Phlx Rules 507 (Application
for Approval as an SQT or RSQT and Assignment in Options), 508
(Allocation Application), 510 (SQT and RSQT Performance Evaluation),
511 (Specialist Performance Evaluation), and 515 (Specialist
Evaluations); and Phlx Options Floor Procedure Advice (``OFPA'') C-8
(Options Specialist Evaluations) to update the specialist evaluation
process; ensure timely electronic quotations by Streaming Quote Traders
and Remote Streaming Quote Traders; ensure the ability of the Exchange
to control allocation transfers; and consolidate and delete unnecessary
and obsolete rules and processes.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxphlx.cchwallstreet.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend By-Law Article
XI Section 11-1; Phlx Rules 507, 508, 510, 511, and 515; and OFPA C-8
to enhance the ability to gauge specialist performance in an ever-
increasingly competitive electronic trading environment; ensure timely
electronic quotations by Streaming Quote Traders and Remote Streaming
Quote Traders; ensure the ability of the Exchange to control allocation
transfers; and consolidate and delete unnecessary and obsolete rules
and processes.
Background
After the merger of The NASDAQ OMX Group, Inc. (``NASDAQ OMX'') and
the Philadelphia Stock Exchange, Inc. (now NASDAQ OMX PHLX LLC),\3\ the
Commission in May 2009 approved a Phlx filing that, among other things,
transferred all relevant duties from the Options Allocation, Evaluation
and Securities Committee (``Allocation Committee'') to the Exchange
staff and established that the Exchange administers Exchange Rules 500
through 599 (the ``Allocation and Assignment Rules'').\4\
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\3\ See Securities Exchange Act Release Nos. 58179 (July 17,
2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31); and 58183
(July 17, 2008), 73 FR 42850 (July 23, 2008) (SR-NASDAQ-2008-035).
See also Securities Exchange Act Release No. 62783 (August 27,
2010), 75 FR 54204 (September 3, 2010) (SR-Phlx-2010-104).
\4\ See Securities Exchange Act Release No. 59924 (May 14,
2009), 74 FR 23759 (May 20, 2009) (SR-Phlx-2009-23) (approval
order.) See also Rule 500.
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The Allocation and Assignment Rules generally describe the process
for: Application for becoming and appointment of specialists;
allocation of classes of options to specialist units and individual
specialists; \5\ application for becoming and approval of Streaming
Quote Traders (``SQTs'') \6\ and Remote Streaming Quote Traders
(``RQTs'') \7\ (together the ``Streaming Quote Traders'') \8\ and
assignment of options to them; and performance evaluations for
specialist units and Streaming Quote Traders. The Allocation and
Assignment Rules also indicate, among other things, under what
circumstances new specialist allocations and Streaming Quote Trader
assignments may not be made.\9\
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\5\ A specialist unit may have one or more individual
specialists. See proposed Supplementary Material .05 to Rule 511.
\6\ An SQT is a Registered Options Trader (``ROT'') who has
received permission from the Exchange to generate and submit option
quotations electronically in options to which such SQT is assigned.
An SQT may only submit such quotations while such SQT is physically
present on the floor of the Exchange. See Rule 1014(b)(ii)(A).
\7\ An RSQT is an ROT that is a member or member organization
with no physical trading floor presence who has received permission
from the Exchange to generate and submit option quotations
electronically in options to which such RSQT has been assigned. An
RSQT may only submit such quotations electronically from off the
floor of the Exchange. See Rule 1014(b)(ii)(B).
\8\ Streaming Quote Traders also include Directed SQTs
(``DSQTs'') and Directed RSQTs (``DRSQTs''), which are SQTs and
RSQTs that receive a Directed Order. Exchange Rule 1080(l)(i)(A)
defines Directed Order.
\9\ See, for example, Supplementary Material .01 to Rule 506
(specialist may not apply for a new allocation for a period of six
months after an option allocation was taken away from the specialist
in a disciplinary proceeding or an involuntary reallocation
proceeding). See also Commentary .02 to Rule 507 (establishing the
Maximum Number of Quoters in assigned equity options).
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Specialist Evaluations
Rule 511 and Rule 515 deal with specialist evaluations and certain
allocation procedures. Currently, Rule 511 indicates, among other
things, that specialist performance evaluations standards and
procedures may be used in respect of Exchange decisions regarding
allocating new options classes; reallocating options classes for
substandard performance; determining whether a specialist that has been
transferred an options class is performing adequately; and determining
whether a staff reorganization or material change with respect to a
specialist unit has affected the ability of the unit to continue to
perform
[[Page 70332]]
adequately in order to retain allocated securities. Rule 511 also
discusses the process and timing for doing routine and special (cause)
evaluations and reviews. Currently, Rule 515 similarly discusses
specialist performance evaluations for options specialists and
indicates, among other things, the timing and frequency of evaluations.
The criterion to evaluate specialists may include, but is not limited
to, quality of markets, observance of ethical standards, administrative
responsibilities, and trade correction and exemptive relief data. Rule
515, like OFPA C-8, also discusses the use of floor broker
questionnaires in the specialist evaluation process.
The Exchange proposes to eliminate the floor broker questionnaire
(``questionnaire''), which asks floor brokers their opinions of
specialist performance and presumes that a specialist unit performed
below minimum standards if the specialist unit was rated in the bottom
10% of all units in the aggregate results for all questionnaires. The
Exchange has found that such questionnaires, being wholly subjective in
nature and not based on any hard data, would generally provide limited,
if any, substantial value in the current fast-paced, competitive
trading environment that includes numerous market participants and
liquidity providers. The Exchange believes that the various types of
specialist performance evaluations that are discussed in this filing
enhance the evaluation process and make it increasingly data-based, and
make questionnaires unnecessary. As such, the Exchange is deleting OFPA
C-8 and all references to floor broker questionnaires in its Allocation
and Assignment Rules and OFPAs.
The Exchange proposes to consolidate Rules 511 and 515 into Rule
511 and to adopt for specialist units \10\ an objective review process
that is similar to the process currently in use for Streaming Quote
Traders per Rule 510, particularly in respect of minimum performance
standards. The Exchange also proposes to relocate portions of the
existing evaluation process from Rule 515 into Rule 511. As such, there
would be two types of specialist evaluations or reviews per Rule 511:
a) routine Specialist Performance Evaluations, which would be conducted
on at least an annual basis,\11\ and would include monthly Minimum
Performance Reviews; \12\ and b) Special Circumstance Evaluations,
which may be conducted if a specialist unit's performance was so
egregiously deficient as to call into question the Exchange's integrity
or impair the Exchange's reputation for maintaining efficient, fair and
orderly markets; and within six months after a new allocation and
within four months after transfer of one or more options.\13\
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\10\ Proposed Supplementary Material .05 to Rule 511 states that
reference to specialist unit within Rule 511 means the unit as a
whole or any subpart of its operation that is acting in a specialist
capacity on the Exchange and is subject to evaluation; and that a
specialist unit may have one or more individual specialists. As
such, individual specialist actions may be attributable to relevant
specialist units in respect of matters discussed in this proposal
such as evaluations. The proposed language in Rule 511 was moved
from Rule 515 and updated to reflect current usage.
\11\ See proposed Rule 511(c).
\12\ See proposed Rule 511(d).
\13\ See proposed Rule 511(e).
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The Exchange proposes changes to Rule 511 so that specialist
suspension, termination, or restriction of allocations in one or more
options may occur after two or more consecutive sub-standard Minimum
Performance Reviews or after Special Circumstance Evaluations and after
written notice. As discussed below, following substandard minimum
performance, a specialist unit may have an opportunity for an informal
meeting with Exchange staff; and following a Special Circumstance
Evaluation may be afforded thirty days to improve performance.
Moroever, after a Minimum Performance Review or a Special Circumstance
Evaluation, a specialist or specialist unit \14\ may appeal from a
decision of the Exchange in accordance with Exchange By-Law Article XI,
Section 11-1, after filing a written notice of appeal with the
Exchange.\15\ The Exchange believes that this appeal process for
specialists or specialist units per Rule 511, which is similar to the
process afforded to Streaming Quote Traders per Rules 507 and 510, is
fair and equitable and promotes uniformity for the various market
participant members of the Exchange.\16\ The Exchange is, for similar
reasons of uniformity, establishing new minimum performance standards
for specialist units.
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\14\ In proposed Rule 511(d) and Rule 511(e), a specialist has
the right to request an appeal on behalf of his specialist unit.
\15\ By-Law Article XI Section 11-1(c) states that an appeal:
shall be heard by a special committee of the Board of Governors
composed of three (3) Governors, of whom at least one (1) shall be
an Independent Governor. The person requesting review may appeal by
filing a written notice thereof with the Secretary of the Exchange
within ten (10) days after a decision. The person requesting review
shall be permitted to submit a written statement to and/or appear
before this special committee. The Secretary of the Exchange shall
certify the record of the proceeding, if any and the written
decision and shall submit these documents to the special committee.
The special committee's review of the action shall be based solely
on the record, the written decision and any statement submitted by
the person requesting the review. The special committee shall
prepare and deliver to such person a written decision and reasons
therefor. If the special committee affirms the action, the action
shall become effective ten (10) days from the date of the special
committee's decision. There shall be no appeal to the Board of
Governors from any decision of the special committee.
The Exchange is correcting a reference in By-Law Article XI
Section 11-1(c) from Rule 511(e) to Rule 511(d) or (e), in light of
the internal numbering changes proposed in Rule 511; and cross-
referencing Rule 507, which notes the availability of the appeal
process.
\16\ For consistency, the Exchange proposes appeal language in
Rules 510 and 511 that is similar, in relevant part, to that of Rule
507: An appeal to the Board of Governors from a decision of the
Exchange * * * may be requested * * * by filing with the Secretary
of the Exchange written notice of appeal within ten (10) days after
the decision has been rendered, in accordance with Exchange By-Law
Article XI, Section 11-1.
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The minimum performance standards for specialist units in proposed
Rule 511(d), which are part of the Specialist Performance Evaluation
process, are similar to the minimum performance standards for Streaming
Quote Traders in Rule 510 Commentary .01.\17\ This is done to promote a
minimum performance floor across the Exchange for specialist units and
Streaming Quote Traders.\18\ Thus, proposed Rule 511(d) suggests the
minimum acceptable performance for specialist units using the following
criteria: (a) The percentage of time that the specialist unit
represents or exceeds the Phlx Best Bid or Offer (``PBBO'') in the
options allocated to the unit; \19\ and (b) quoting requirements of
specialist units pursuant to Rule 1014.\20\ Specifically, if the
percentage of the total time that the options allocated to a specialist
unit represent or exceed the PBBO is in the lowest quartile of all
specialist units for two or more consecutive months, this may be
considered sub-standard performance, that is, performance that does not
attain minimum performance standards; and if a specialist unit fails
[[Page 70333]]
to meet the quoting requirements as prescribed by Rule 1014, this may
be considered sub-standard performance. The Exchange proposes a process
that would allow specialist to meet with Exchange staff regarding their
sub-standard performance.
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\17\ See Securities Exchange Act Release No. 55080 (January 10,
2007), 72 FR 2324 (January 18, 2007) (SR-Phlx-2006-51) (order
approving performance standards for Streaming Quote Traders and
Remote Streaming Traders).
\18\ Recognizing that among market participants on the Exchange
specialists have diverse and at times greater market making
responsibilities, which are not diminished by this filing,
Specialist Performance Evaluations are available to the Exchange to
review specialist performance and behavior (as discussed in more
detail below).
\19\ In that the Exchange is specifically establishing a measure
of specialist performance on Phlx, the Exchange is changing the
requirement to PBBO from NBBO (National Best Bid or Offer). A
reference in Commentary .01 of Rule 510 is similarly changed to PBBO
for the sake of conformity.
\20\ This rule change proposal makes no changes to current
quoting requirements for specialists delineated in Rule 1014. Rule
1014 is written in terms of specialists; as noted in proposed
Supplementary Material .05 to Rule 511, a specialist unit may have
one or more specialists. See supra note 10.
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The Exchange proposes in Rule 511(d)(ii) that if the Exchange finds
that a specialist unit failed to meet Minimum Performance Standards, it
will provide written notice to the unit. The Exchange proposes in Rule
511(d)(iii) that the specialist unit may request and the Exchange may
hold an informal meeting with the head specialist and any other
appropriate specialist of the specialist unit to discuss the failure to
meet minimum standards and to explore possible remedies. The Exchange
will give notice of the meeting and no verbatim record will be kept.
If, after receiving such notice for the Exchange, the specialist unit
refuses or otherwise fails without reasonable justification to meet
with the Exchange, the Exchange may refer the matter to the Business
Conduct Committee (a standing committee of the Exchange) for the
commencement of formal disciplinary proceedings. If the Exchange
believes there are no mitigating circumstances that would demonstrate
substantial improvement of or reasonable justification for the failure
to meet minimum standards, the Exchange may take remedial action
pursuant to subparagraph (d)(ii).
The Exchange proposes in Rule 511(d)(ii) that if it finds sub-
standard minimum performance by a specialist unit, the Exchange may
take the following remedial actions: a) restriction of allocations in
additional options (subsection (d)(ii)(A)); b) suspension, termination,
or restriction of allocations in one or more options (subsection
(d)(ii)(B)); or c) suspension, termination, or restriction of the
specialist or specialist unit's registration in general (subsection
(d)(ii)(C)). Specialist units or specialists therein may appeal to the
Board of Governors from a decision of the Exchange pursuant to
subsection (d)(ii)(B) or subsection (d)(ii)(C) by filing the requisite
notice of appeal.\21\ Minimum Performance Reviews will be conducted at
least annually but may be conducted at monthly intervals.
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\21\ See supra note 15. The Minimum Performance Standards;
remedial action by the Exchange if there is a failure to attain such
performance standards; and appeal rights therefrom are substantially
similar for specialist units and SQTs/RSQTs per Rules 511 and 510,
respectively.
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Routine Specialist Performance Evaluations pursuant to proposed
Rule 511(c) are conducted at annual (or shorter) intervals to determine
whether specialists have fulfilled performance standards that may
include, but are not limited to, trade correction data, exemptive
relief data, quality of markets data, proper execution of duties as a
specialist unit, competition among market makers and in representing
the Exchange as specialist unit, observance of ethical standards, and
administrative factors. The Exchange may also consider, when doing
these routine evaluations, any other relevant information including,
but not limited to, trading data, regulatory history, the number of
requests for quote spread parameter relief, how a specialist unit
optimizes the submission of quotes through the Specialized Quote Feed
as defined in Rule 1080 by evaluating the number of individual quotes
per quote block received by the Exchange, and such other factors and
data as may be pertinent in the circumstances.
The Exchange may also, but is not required to, conduct Special
Circumstance Evaluations pursuant to proposed Rule 511(e) whenever the
Exchange feels that circumstances warrant such reviews. These include,
but are not limited to, where the Exchange believes that a specialist
unit's performance in a particular market situation was so egregiously
deficient as to call into question the Exchange's integrity or impair
the Exchange's reputation for maintaining efficient, fair and orderly
markets. Special Circumstance Evaluations may incorporate the same
review methodology and procedures as established for routine Specialist
Performance Evaluations or Minimum Performance Reviews. However,
Special Circumstance Evaluations may instead or in addition examine
such other matters related to a specialist unit's performance as the
Exchange deems necessary and appropriate. Special Circumstance
Evaluations may be done within six months of new allocations \22\ and
within four months of transfers of allocations to specialist units.\23\
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\22\ For purposes of conformity with the proposed six month
period, 90 days is changed to 180 days (six months) in Rule 511(b).
\23\ While Special Circumstance Evaluations are optional during
the noted four month and six month periods, the Exchange may also
conduct independent Minimum Performance Reviews on a monthly basis.
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The Exchange may determine, pursuant to a Rule 511 Special
Circumstance Evaluation, that a specialist unit that received a new
allocation has not complied with any of the commitments that it made
when applying for the options class, including but not limited to
commitments regarding capital, personnel and order flow (subsection
(e)(i)(A)); or that the performance of a specialist unit was inadequate
after the transfer of one or more options classes or when there has
been a material change in the specialist unit (subsection (e)(i)(B)).
After the Exchange indicates to the applicable specialist unit why its
performance is inadequate, the specialist unit will be afforded thirty
days in which to improve its performance. If the specialist unit does
not improve its performance, the Exchange may, after written notice,
remove and reallocate one or more securities that were allocated to
such unit. Specialists units and specialists therein may appeal to the
Board of Governors from a decision of the Exchange pursuant to proposed
subsection (e)(ii) by filing the requisite notice of appeal.\24\
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\24\ See supra note 15.
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Additionally, the rules establish limits on the allocation of
options to specialist units that fail to perform adequately. By virtue
of proposed Rule 511(e)(iii), if a specialist allocation in an option
is terminated as a result of a Special Circumstance Evaluation, the
specialist unit may not receive an allocation (or re-allocation) in the
terminated option or options for a period not to exceed six months.
Similarly, by virtue of proposed Rule 511(d)(v), if an allocation is
terminated because a specialist exhibits sub-standard performance in
terms of best bid and offer or in terms of quoting requirements, such
specialist may not receive an allocation (or re-allocation) in the
terminated option or options for a period not to exceed six months; and
if an allocation is terminated because a specialist unit exhibits sub-
standard performance in terms of minimum quoting requirements per Rule
1014, such specialist unit may not receive an allocation (or re-
allocation) in the terminated option or options for a period not to
exceed twelve months.
As discussed, all specialists and specialist units have the right
to appeal from an Exchange decision that was taken pursuant to a
Specialist Evaluation or a Special Circumstance Evaluation. Moreover,
the rules indicate that the Exchange must provide written notice
regarding the lack of adequate performance; and give specialist units
an opportunity to discuss performance or improve performance before the
Exchange takes remedial action. The Exchange feels that these
procedures are fair, reasonable, and uniform for all specialists on the
Exchange.\25\
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\25\ In an effort to streamline the specialist evaluation
process, and in light of the noted safeguards built into the
Exchange's rules and By-Laws, the Exchange is deleting the formal
hearing process that is currently in Rule 511(e) and proposes an
informal hearing process in Rule 510 (regarding SQTs and RSQTs) and
Rule 511 (regarding specialists).
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[[Page 70334]]
In Rule 510 (regarding SQTs and RSQTs) and Rule 511 (regarding
specialists), the Exchange proposes to eliminate the right to appeal
from an Exchange's determination to restrict additional options
allocations based on failure to meet minimum performance requirements.
The Exchange believes that an appeals process for restriction of
allocations or assignments in additional (not currently allocated or
assigned) options, which would require a 10 day notice period followed
by a potentially lengthy appeals proceeding, is not necessary and
indeed may be counterproductive in light of the need to efficiently and
timely allocate or assign additional options.
Assignment in Options
Rule 507 deals with the process of applying for approval as an SQT
or RSQT on the Exchange and assignment of options to SQTs and RSQTs.
These are Registered Options Traders that, similarly to other market
makers on the Exchange such as specialists, provide depth and liquidity
through two-sided quotes in the options in which they are assigned.
Rule 1014 discusses, among other things, the quote obligations of
market makers and participants on the Exchange.\26\ Rule 507 defines
the Maximum Number of Quoters (``MNQ'') in equity options, which
establishes the greatest number of SQT and RSQT assignments that the
Exchange may make in a particular class of option. MNQ in equity
options is currently set in Commentary .02 to Rule 507 at no more than:
Twenty-four market participants (SQTs and RSQTs) for equity options in
the top 5% most actively traded options; nineteen market participants
for the next 10% most actively traded options; and seventeen market
participants for all other options.\27\
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\26\ Rule 1014(b)(ii)(D) states that in addition to the other
requirements for ROTs set forth in this Rule 1014, except as
provided in sub-paragraph (4) below, an SQT and an RSQT shall be
responsible to quote two-sided markets in not less than 60% of the
series in which such SQT or RSQT is assigned, provided that, on any
given day, a Directed SQT (``DSQT'') or a Directed RSQT (``DRSQT'')
(as defined in Rule 1080(l)(i)(C)) shall be responsible to quote
two-sided markets in the lesser of 99% of the series listed on the
Exchange or 100% of the series listed on the Exchange minus one
call-put pair, in each case in at least 60% of the options in which
such DSQT or DRSQT is assigned. Whenever a DSQT or DRSQT enters a
quotation in an option in which such DSQT or DRSQT is assigned, such
DSQT or DRSQT must maintain until the close of that trading day
quotations for the lesser of 99% of the series of the option listed
on the Exchange or 100% of the series of the option listed on the
Exchange minus one call-put pair.
\27\ Regarding MNQ procedures in general, see Commentaries .01
to .05 to Rule 507. See also Securities Exchange Act Release No.
60688 (September 18, 2009), 74 FR 49058 (September 25, 2009) (SR-
Phlx-2009-82) (order approving modest increase in MNQ levels).
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Because the number of assignments that may be made by the Exchange
are limited by MNQ, thereby resulting in situations where SQTs and
RSQTs may not be able to get assignments that they applied (and may be
eligible) for, the Exchange is striving to ensure that option
assignments are used to provide liquidity within a reasonable time
after assignment. It is for this reason that the Exchange proposes to
add new Commentary .01 to Rule 507 to state that within not more than
thirty business days after assignment of an option pursuant to this
rule, an assigned SQTs or RSQTs shall begin to generate and submit
electronic quotations for such option through the Exchange's electronic
quotation, execution, and trading system. Quoting requirements are, as
previously noted, set forth in Rule 1014.\28\ Should an assigned SQT or
RSQT not generate electronic quotes within the requisite time frame,
the Exchange shall have the ability to terminate the assignment in
question after providing written notice to the assigned SQT or RSQT,
and make a re-assignment, unless there are exigent circumstances that
the Exchange believes may not have allowed timely generation and
submission of electronic quotes.\29\
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\28\ Rule 1014 also sets forth circumstances in which market
participants do not have quoting responsibilities. As an example,
subsection (b)(ii)(D)(4) states that SQTs, DSQTs, RSQTs and DRSQTs
are deemed not to be assigned, and therefore do not have quoting
responsibilities, respecting Quarterly Option Series, adjusted
option series, and series with an expiration of nine months or
greater. Adjusted option series are defined as option series wherein
one option contract in the series represents the delivery of other
than 100 shares of underlying stock or Exchange-Traded Fund Shares.
See Securities Exchange Act Release No. 61095 (December 2, 2009), 74
FR 64786 (December 8, 2009) (SR-Phlx-2009-99) (notice of filing and
immediate effectiveness).
\29\ The Exchange has proposed other amendments to Rule 507 at
SR-Phlx-2010-145 that should not impact this filing. Should it
become necessary, however, the Exchange will propose additional rule
text amendments.
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Transfer of Allocated Option Classes
Rule 508 deals with agreements between specialist units to transfer
one or more options classes that are already allocated by the Exchange
to one of such units. This type of process tends to happen most often,
and in fact is instrumental to facilitating the orderly transfer and
continuation of markets in classes of allocated options, when a
specialist unit significantly changes the scale or breadth of its
specialist operation on the Exchange or withdraws from the Exchange.
Currently, Rule 508 states that failure to provide the Exchange
with prior notice of an arranged (agreed-upon) transfer of one or more
already allocated options classes in accordance with this rule permits
the Exchange to reallocate such options classes. The proposed change to
Rule 508 states that failure to provide the Exchange prior notice of a
transfer in accordance with this Rule, or failure to obtain Exchange
approval of a transfer, permits the Exchange to recover the allocated
securities and reallocate them. The Exchange believes that this is
appropriate given that the Exchange initially makes the allocation of
the option class after evaluating the relevant factors, and should
continue to have a similar ability to evaluate the propriety of
subsequent transfer of the same option class.
Commentary .01 to Rule 508 also currently indicates that no member
may effect a change in the floor trading location of any equity option
or index option class until forty-five calendar days after final
approval of the change by the Exchange has been disseminated to the
option floor. The Exchange proposes to delete this provision. The
Exchange believes that the forty-five day delay to affect a change is
functionally obsolete and no longer necessary, particularly in the
current fast-paced trading environment.\30\
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\30\ The Exchange will notify relevant specialist units,
specialists, or members regarding transfer applications pursuant to
Rule 508.
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Finally, the Exchange is proposing technical, housekeeping rule
changes in respect of ensuring conformity of rule language and deleting
references that are obsolete or no longer in use. For example, the
reference to Registrant is changed to specialist or specialist unit in
Rules 508 and 511, and the reference to grant is changed to allocate in
Rule 511 for purposes of conformity.\31\ The Exchange is proposing to
clean up the language of Commentary .02 of Rule 510 by removing
reference to initial implementation of the existing rule. The Exchange
is also proposing to conform Rule 511 language in light of the
consolidation with Rule 515. Thus, reference to Specialist Performance
Evaluations and Special Circumstance Evaluations, and reference to
factors that may be considered by the Exchange (e.g., evaluations,
trade correction data, exemptive relief data) are added to Rule
[[Page 70335]]
511(b); and reference to Rule 515 is deleted.
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\31\ This change in terminology conforms it to current usage.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \32\ in general, and furthers the objectives of Section
6(b)(5) of the Act \33\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest, by updating and making more uniform the evaluation process
for specialist units, ensuring timely electronic quotations by SQTs and
RSQTs, and consolidating and deleting unnecessary and obsolete rules
and processes. The Exchange believes that its rule change proposal does
not engender unfair discrimination among specialists, specialist units,
SQTs and RSQTs in that it proposes to amend rules and procedures that
are equally applicable to all members and member organizations at the
Exchange.
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\32\ 15 U.S.C. 78f(b).
\33\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File No. SR-Phlx-2010-153 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2010-153. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2010-153 and should be
submitted on or before December 8, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-28900 Filed 11-16-10; 8:45 am]
BILLING CODE 8011-01-P