Notice2024-25638
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt New Rules at Options 6 and 6C
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 5, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 214 (Tuesday, November 5, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 214 (Tuesday, November 5, 2024)]
[Notices]
[Pages 87919-87921]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-25638]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101482; File No. SR-Phlx-2024-56]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Adopt New Rules
at Options 6 and 6C
October 30, 2024.
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 October 18, 2024, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
a 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt a new rule titled ``Letters of
Guarantee'' in Options 6, Options Trade Administration, and a new rule
entitled ``Margin Required Is Minimum'' in Options 6C, Margins.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rules">https://listingcenter.nasdaq.com/rulebook/phlx/rules</a>, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt a new rule titled ``Letters of
Guarantee'' in Options 6, Options Trade Administration and a new rule
entitled ``Margin Required Is Minimum'' in Options 6C, Margins. Each
proposed change is described below.
Options 6
The Exchange proposes to adopt a new rule titled, ``Letters of
Guarantee,'' at Options 6, Section 4, which is currently reserved. The
adoption of Options 6, Section 4 is not intended to expand the current
requirements imposed on members and member organizations, rather it is
intended to make clear the current requirement to maintain a letter of
guarantee. By way of background, the letter of guarantee provides that
the Clearing Member \3\ accepts financial responsibility for all
Exchange transactions made by the Phlx member organization on whose
behalf the Clearing Member submits the letter of guarantee. Clearing
Members guarantee all transactions on behalf of a member and member
organizations, and therefore bear the risk associated with those
transactions.
---------------------------------------------------------------------------
\3\ The term ``Clearing Member'' means a member organization
which has been admitted to membership in The Options Clearing
Corporation pursuant to the provisions of the rules of The Options
Clearing Corporation. See Options 1, Section 1(b)(10).
---------------------------------------------------------------------------
Today, all Phlx members and member organizations are required to
have a membership in, or access arrangement with a participant of a
clearing agency registered with the Commission that maintains
facilities through which compared trades may be settled.\4\ Further,
today, Phlx Options 6D, Section 1 makes clear that each member
organization referred to in paragraph (iii) \5\ shall at all times
maintain positive net liquid assets and, in its clearing account(s),
positive equity, provided that said organization has filed with the
Exchange a letter of guarantee issued on its behalf by a clearing
member organization of this Exchange which is also a clearing member of
The Options Clearing Corporation.\6\ At this time, the Exchange
proposes to adopt a ``Letters of Guarantee'' rule at Options 6, Section
4, which is substantively identical to Nasdaq ISE, LLC (``ISE'')
Options 6, Section 4, to make clear that member organizations have an
obligation to obtain a letter of guarantee.
---------------------------------------------------------------------------
\4\ See Nasdaq General 3, Rule 1032. Phlx General 3 Rules are
incorporated by reference to Nasdaq General 3 Rules. See also
Nasdaq's membership form (<a href="https://www.nasdaqtrader.com/content/marketregulation/membership/NASDAQSROMembershipApplicationFinal.pdf">https://www.nasdaqtrader.com/content/marketregulation/membership/NASDAQSROMembershipApplicationFinal.pdf</a>)
which states that all options participants must provide an executed
clearing letter of guarantee.
\5\ See Phlx Options 6D, Section 1(a)(iii) provides that each
member organization or foreign currency options participant
organization exempt from SEC Rule 15c3-1 and whose principal
business is as a registered options trader on the Exchange, shall,
subject to subparagraph (iv) below, at all times maintain a minimum
of $25,000 in net liquid assets.
\6\ See Phlx Options 6D Section 1(a)(iv). This rule is intended
to make clear that member organizations or other participants that
are exempt from SEC Rule 15c3-1 must also have a letter of
guarantee.
---------------------------------------------------------------------------
Similar to ISE, the Exchange proposes to specifically note at
Options 6, Section 4(a) that no Phlx Market Maker shall make any
transactions on the Exchange unless a letter of guarantee has been
issued for such member organization by a Clearing Member and filed with
the Exchange, and unless such letter of guarantee has not been revoked
pursuant to paragraph (c) of Options 6, Section 4. This language is
consistent with Phlx General 3, Rule 1032 and Phlx Options 6D, Section
1(a)(iv), and the language is substantively identical to ISE Options 6,
Section 4(a). Further, the Exchange proposes to state at Options 6,
Section 4(b) that a letter of guarantee shall provide that the issuing
Clearing Member accepts financial responsibilities for all Exchange
transactions made by the guaranteed member organization. This language
is consistent with Phlx Options 6D, Section 1(a)(iv), and the language
is substantively identical to ISE Options 6,
[[Page 87920]]
Section 4(b). Finally, the Exchange proposes to state at Options 6,
Section 4(c) that a letter of guarantee filed with the Exchange shall
remain in effect until a written notice of revocation has been filed
with the Exchange. A revocation shall in no way relieve a Clearing
Member of responsibility for transactions guaranteed prior to the
effective date of such revocation. This language is consistent with
Phlx Options 6D, Section 1(a)(iv), and the language is substantively
identical to ISE Options 6, Section 4(c).
The proposed rule creates a new rule, separate and apart from the
financial responsibility rules, which makes clear a Market Maker's
obligation to obtain a letter of guarantee. Further, the rule will
further harmonize the Exchange's rule with that of other Nasdaq
affiliated exchanges.\7\
---------------------------------------------------------------------------
\7\ Nasdaq GEMX, LLC (``GEMX'') and Nasdaq MRX, LLC (``MRX'')
incorporate by reference ISE's Options 6 rules.
---------------------------------------------------------------------------
Options 6C
The Exchange proposes to adopt a new rule titled, ``Margin Required
Is Minimum,'' at Options 6C, Section 5, which is currently reserved. By
way of background, margin requirements help to offset the risk that
brokers take when allowing investors to use margin. There are two types
of margin requirements: initial margin and maintenance margin. Initial
margin is the minimum amount of equity required to open a new margin
position and maintenance margin is the minimum amount of equity that
must be maintained in the account at all times. This proposed rule
would be substantively identical to Nasdaq BX, Inc. (``BX'') and The
Nasdaq Options Market LLC (``NOM'') Options 6C, Section 5.
The Exchange proposes to provide at Phlx Options 6C, Section 5(a)
that the amount of margin prescribed by Options 6C is the minimum which
must be required initially and subsequently maintained with respect to
each account affected thereby; but nothing in these Rules shall be
construed to prevent a member organization from requiring margin in an
amount greater than that specified. Further, the Exchange proposes to
provide at Phlx Options 6C, Section 5(b) that the Exchange may at any
time impose higher margin requirements with respect to such positions
when it deems such higher margin requirements to be advisable.
Today, Phlx Options 6C, Section 3(a) provides that no member
organization shall effect a transaction or accept or carry an account
for a customer, whether a member or non-member of the Exchange, without
proper and adequate margin in accordance with the Margin Rules set
forth in Options 6C, Sections 3 and 7 and Regulation T. The Exchange
also proposes to amend Phlx Options 6C, Section 3(a) to note compliance
with proposed Section 5.
With this rule, Phlx, similar to BX and NOM, would be able to
impose higher margin requirements. This rule will further harmonize the
Exchange's rule with that of other Nasdaq affiliated exchanges.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\8\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\9\ 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.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b)
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Options 6
The Exchange's proposal to adopt a new rule titled, ``Letters of
Guarantee,'' at Options 6, Section 4, is consistent with the Act
because it will create a new rule, separate and apart from the
financial responsibility rules, that makes clear a Market Maker's
current obligation to obtain a letter of guarantee. Additionally, the
proposed rule will harmonize Phlx's rule text with other Nasdaq
affiliated exchanges \10\ with respect to requirements to obtain a
letter of guarantee. The proposed rule makes clear that Market Makers
are required to obtain a letter of guarantee from a Clearing Member.
Similar to Phlx General 3, Rule 1032, which specifies membership
requirements, and Phlx Options 6D, Section 1(a)(iv), which govern
financial responsibilities, each Market Maker must obtain a letter of
guarantee from a Clearing Member, and such letter must be filed with
the Exchange. Additionally, the letter of guarantee shall provide that
the issuing Clearing Member accepts financial responsibilities for all
Exchange transactions made by the guaranteed member organization.
Finally, the letter of guarantee shall remain in effect until a written
notice of revocation has been filed with the Exchange and specifies
that it in no way relieves a Clearing Member of responsibility for
transactions guaranteed prior to the effective date of such revocation.
The proposed rule will further harmonize the Exchange's rule with that
of other Nasdaq affiliated exchanges.\11\
---------------------------------------------------------------------------
\10\ GEMX and MRX incorporate by reference ISE's Options 6
rules.
\11\ Id.
---------------------------------------------------------------------------
Options 6C
The Exchange's proposal to adopt a new rule, titled ``Margin
Required Is Minimum,'' at Options 6C, Section 5 is consistent with the
Act as it would permit Phlx to impose higher margin requirements \12\
similar to other options markets; the proposed rule would be
substantively identical to BX and NOM Options 6C, Section 5. As
proposed in Options 6C, Section 5(a), the amount of margin prescribed
by Options 6C would be the minimum which must be required initially and
subsequently with respect to each account affected thereby; but nothing
in these Rules shall be construed to prevent a member organization from
requiring margin in an amount greater than that specified. As proposed
in Options 6C, Section 5(b), the Exchange may at any time impose higher
margin requirements with respect to such positions when it deems such
higher margin requirements to be advisable. Today, Phlx Options 6C,
Section 3(a) provides that no member organization shall effect a
transaction or accept or carry an account for a customer, whether a
member or non-member of the Exchange, without proper and adequate
margin in accordance with the Margin Rules set forth in Options 6C,
Sections 3 and 7 and Regulation T. The Exchange's proposal to amend
Phlx Options 6C, Section 3(a) to note compliance with proposed Section
5 will make clear the applicable margin rules that a member
organization must comply with when trading on Phlx. This rule will
further harmonize the Exchange's rule with that of other Nasdaq
affiliated exchanges.
---------------------------------------------------------------------------
\12\ The Exchange notes that higher margin requirements would be
imposed in times of market volatility and with respect to a
particular product(s).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
Options 6
The Exchange's proposal to adopt a new rule titled, ``Letters of
Guarantee,'' at Options 6, Section 4, does not impose an intra-market
burden on competition because all Market Makers will have to uniformly
comply with this proposed rule which makes clear the current
requirement that each member organization must provide a letter of
[[Page 87921]]
guarantee from a Clearing Member as specified in the membership
requirements \13\ and Options 6D, Section 1.\14\ The Exchange notes
that this rule would apply the same standards to Market Makers similar
to ISE.
---------------------------------------------------------------------------
\13\ See supra note 4.
\14\ See supra note 6.
---------------------------------------------------------------------------
The Exchange's proposal to adopt a new rule titled, ``Letters of
Guarantee,'' at Options 6, Section 4, does not impose an inter-market
burden on competition because other options exchanges may adopt a
similar rule. Today, ISE has substantively identical rule at Options 6,
Section 4.
Options 6C
The Exchange's proposal to adopt a new rule titled, ``Margin
Required Is Minimum,'' at Options 6C, Section 5 does not impose an
intra-market burden on competition because all member organizations
would be subject to the proposed rule and the application of the rule
would apply uniformly to all member based on the affected product. The
proposed rule is substantively identical to BX and NOM Options 6C,
Section 5.
The Exchange's proposal to adopt a new rule titled, ``Margin
Required Is Minimum,'' at Options 6C, Section 5 does not impose an
inter-market burden on competition because other options exchanges may
adopt a similar rule. Today, BX and NOM have a substantively identical
rule at Options 6C, Section 5.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \15\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78s(b)(3)(A)(iii).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#a1d3d4cdc48cc2ceccccc4cfd5d2e1d2c4c28fc6ced7"><span class="__cf_email__" data-cfemail="89fbfce5eca4eae6e4e4ece7fdfac9faeceaa7eee6ff">[email protected]</span></a>. Please include
file number SR-Phlx-2024-56 on the subject line.
Paper Comments
<bullet> 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-2024-56. 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 (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-Phlx-2024-56 and should be
submitted on or before November 26, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-25638 Filed 11-4-24; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on November 5, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.