Notice2022-02085
Order Granting Application by Nasdaq PHLX LLC for an Exemption Pursuant to Section 36(a) of the Exchange Act From the Rule Filing Requirements of Section 19(b) of the Exchange Act With Respect to Certain Rules Incorporated by Reference
Primary source
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Published
February 2, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 22 (Wednesday, February 2, 2022)</title>
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[Federal Register Volume 87, Number 22 (Wednesday, February 2, 2022)]
[Notices]
[Pages 5929-5930]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-02085]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94091]
Order Granting Application by Nasdaq PHLX LLC for an Exemption
Pursuant to Section 36(a) of the Exchange Act From the Rule Filing
Requirements of Section 19(b) of the Exchange Act With Respect to
Certain Rules Incorporated by Reference
January 27, 2022.
Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') has filed with the
Securities and Exchange Commission (``Commission'') an application for
an exemption under Section 36(a)(1) of the Securities Exchange Act of
1934 (``Exchange Act'') \1\ from the rule filing requirements of
Section 19(b) of the Exchange Act \2\ with respect to certain rules of
the Financial Industry Regulatory Authority, Inc. (``FINRA'') that the
Exchange seeks to incorporate by reference.\3\ Section 36 of the
Exchange Act, subject to certain limitations, authorizes the Commission
to conditionally or unconditionally exempt any person, security, or
transaction, or any class thereof, from any provision of the Exchange
Act or rule thereunder, if necessary or appropriate in the public
interest and consistent with the protection of investors.
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\1\ 15 U.S.C. 78mm(a)(1).
\2\ 15 U.S.C. 78s(b).
\3\ See Letter from Angela S. Dunn, Principal Associate General
Counsel, Phlx, to J. Matthew DeLesDernier, Assistant Secretary,
Commission, dated August 26, 2021 (``Exemptive Request'').
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The Exchange has requested, pursuant to Rule 0-12 under the
Exchange Act,\4\ that the Commission grant the Exchange an exemption
from the rule filing requirements of Section 19(b) of the Exchange Act
for changes to the Exchange's rules that are effected solely by virtue
of a change to a cross-referenced FINRA rule. Specifically, the
Exchange requests that it be permitted to incorporate by reference
changes made to the FINRA rules that are cross-referenced in the
Exchange's rules identified below, without the need for the Exchange to
file separately similar proposed rule changes pursuant to Section 19(b)
of the Exchange Act: \5\
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\4\ 17 CFR 240.0-12.
\5\ See Exemptive Request, supra note 3, at 2.
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<bullet> General 9, Section 1(a) (Prohibition Against Trading Ahead
of Customer Orders) cross-references FINRA Rule 5320 (except for FINRA
Rule 5320.02(b) and the reference to FINRA Rule 6420 in FINRA Rule
5320).
<bullet> Options 10, Section 20 (Options Communications) cross-
references FINRA Rule 2220 (except for FINRA Rule 2220(c)).
The Exchange represents that the FINRA rules listed above are
regulatory rules and not trading rules.\6\ The Exchange represents
that, as a condition to the requested exemption from Section 19(b) of
the Exchange Act, the Exchange will provide written notice to its
members and member organizations whenever FINRA proposes a change to
FINRA Rule 2220 or 5320.\7\ The Exchange states that such notice will
alert its members, member organizations, and associated persons to the
proposed FINRA rule change and give them an opportunity to comment on
the proposal.\8\ The Exchange further represents that it will inform
members, member organizations, and associated persons in writing when
the Commission approves any such proposed rule changes.\9\
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\6\ See id. at 2, n.8. The Exchange also states that it is not
``cherry picking'' because the Exchange would be incorporating
categories of rules. See id.
\7\ See id. at 2-3. The Exchange represents that it will provide
such notice via a posting on the same website location where the
Exchange posts its own rule filings pursuant to Rule 19b-4(l) within
the time frame required by such rule. See id. at 3, n.9. The website
posting will include a link to the location on FINRA's website where
the applicable proposed rule change is posted. See id.
\8\ See id. at 3.
\9\ See id.
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According to the Exchange, this exemption is appropriate because it
would result in the Exchange's rules pertaining to prohibition against
trading ahead of customer orders and options communications being
consistent with the relevant cross-referenced FINRA rules at all times,
thus ensuring consistent regulation of joint members of Phlx and
FINRA.\10\ The Exchange further states that, even if members are not
joint members of Phlx and FINRA, the exemption is appropriate because
it will permit its rules to remain consistent with FINRA's rules and
ensure consistent treatment of industry members with respect to the
aforementioned rules.\11\
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\10\ See id. at 2.
\11\ See id.
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The Commission has issued exemptions similar to the Exchange's
[[Page 5930]]
request.\12\ In granting similar exemptions, the Commission stated that
it would consider similar future exemption requests, provided that:
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\12\ See, e.g., Securities Exchange Act Release Nos. 83296 (May
21, 2018), 83 FR 24362 (May 25, 2018) (order granting NYSE National,
Inc.'s exemptive request relating to rules of FINRA incorporated by
reference); 83040 (April 12, 2018), 83 FR 17198 (April 18, 2018)
(order granting MIAX PEARL, LLC's exemptive request relating to
rules of the Miami International Securities Exchange, LLC
incorporated by reference); 76998 (January 29, 2016), 81 FR 6066,
6083-84 (February 4, 2016) (order granting application for
registration as a national securities exchange of ISE Mercury, LLC
and exemptive request relating to rules of certain self-regulatory
organizations (``SROs'') (including FINRA) incorporated by
reference); 61534 (February 18, 2010), 75 FR 8760 (February 25,
2010) (order granting BATS Exchange, Inc.'s exemptive request
relating to rules incorporated by reference by the BATS Exchange
Options Market rules) (``BATS Options Market Order''); 61152
(December 10, 2009), 74 FR 66699, 66709-10 (December 16, 2009)
(order granting application for registration as a national
securities exchange of C2 Options Exchange, Incorporated and
exemptive request relating to rules of the Chicago Board Options
Exchange, Incorporated, incorporated by reference).
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<bullet> An SRO wishing to incorporate rules of another SRO by
reference has submitted a written request for an order exempting it
from the requirement in Section 19(b) of the Exchange Act to file
proposed rule changes relating to the rules incorporated by reference,
has identified the applicable originating SRO(s), together with the
rules it wants to incorporate by reference, and otherwise has complied
with the procedural requirements set forth in the Commission's release
governing procedures for requesting exemptive orders pursuant to Rule
0-12 under the Exchange Act; \13\
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\13\ See 17 CFR 240.0-12 and Securities Exchange Act Release No.
39624 (February 5, 1998), 63 FR 8101 (February 18, 1998) (Commission
Procedures for Filing Applications for Orders for Exemptive Relief
Pursuant to Section 36 of the Exchange Act; Final Rule).
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<bullet> The incorporating SRO has requested incorporation of
categories of rules (rather than individual rules within a category)
that are not trading rules (e.g., the SRO has requested incorporation
of rules such as margin, suitability, or arbitration); and
<bullet> The incorporating SRO has reasonable procedures in place
to provide written notice to its members each time a change is proposed
to the incorporated rules of another SRO.\14\
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\14\ See BATS Options Market Order, supra note 12 (citing
Securities Exchange Act Release No. 49260 (February 17, 2004), 69 FR
8500 (February 24, 2004) (order granting exemptive request relating
to rules incorporated by reference by several SROs) (``2004
Order'')).
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The Commission believes that the Exchange has satisfied each of
these conditions. The Commission also believes that granting the
Exchange an exemption from the rule filing requirements under Section
19(b) of the Exchange Act will promote efficient use of the
Commission's and the Exchange's resources by avoiding duplicative rule
filings based on simultaneous changes to identical rule text sought by
more than one SRO.\15\ The Commission therefore finds it appropriate in
the public interest and consistent with the protection of investors to
exempt the Exchange from the rule filing requirements under Section
19(b) of the Exchange Act with respect to the above-described FINRA
rules it has incorporated by reference. This exemption is conditioned
upon the Exchange promptly providing written notice to its members
whenever FINRA changes a rule that the Exchange has incorporated by
reference.
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\15\ See BATS Options Market Order, supra note 12, 75 FR at
8761; see also 2004 Order, supra note 14, 69 FR at 8502.
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Accordingly, IT IS ORDERED, pursuant to Section 36 of the Exchange
Act,\16\ that the Exchange is exempt from the rule filing requirements
of Section 19(b) of the Exchange Act solely with respect to changes to
the rules identified in the Exemptive Request, provided that the
Exchange promptly provides written notice to its members whenever FINRA
proposes to change a rule that the Exchange has incorporated by
reference.
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\16\ 15 U.S.C. 78mm.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(76).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02085 Filed 2-1-22; 8:45 am]
BILLING CODE 8011-01-P
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