Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Options 10, Section 27, Influencing or Rewarding Employees of Others

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<title>Federal Register, Volume 91 Issue 182 (Tuesday, September 22, 2026)</title>
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[Federal Register Volume 91, Number 182 (Tuesday, September 22, 2026)]
[Notices]
[Pages 60186-60190]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-19298]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-106406; File No. SR-Phlx-2026-56]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Adopt Options 
10, Section 27, Influencing or Rewarding Employees of Others

September 17, 2026.
    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 September 8, 2026, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``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 adopt a new rule at Options 10, Section 
27, Influencing or Rewarding Employees of Others, which is 
substantively similar to FINRA Rule 3220.
    The text of the proposed rule change is available on the Exchange's 
website at <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rulefilings">https://listingcenter.nasdaq.com/rulebook/phlx/rulefilings</a>, 
and at the principal office of the Exchange.

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 at Options 10, Section 
27, which is currently reserved. The new rule, ``Influencing or 
Rewarding Employees of Others,'' is substantially similar to FINRA Rule 
3220, Influencing or Rewarding Employees of Others. The Exchange also 
proposes a technical amendment at Options 10, Section 7, Supervision of 
Accounts.
    The proposed rule is designed to protect against improprieties, 
such as conflicts of interest, which might arise when a member 
organization or an associated person gives an item of value to an 
employee of another person, such as an institutional customer, vendor, 
or counterparty. Adopting a rule substantially similar to FINRA Rule 
3220 promotes consistency for member organizations that operate across 
multiple markets, reduces regulatory fragmentation, and enables the 
Exchange to enforce a uniform standard of business conduct regarding 
the giving of gifts and gratuities. Phlx member organizations that are 
also FINRA members are already subject to the amended FINRA Rule 3220, 
and the proposed rule would apply a substantially similar standard on 
the Exchange. Member organizations that are not FINRA members would be 
subject to the proposed rule to the extent that they conduct business 
on the Exchange.
    Proposed Options 10, Section 27(a) provides that no member 
organization, Options Principal, Representative, officer, partner or 
branch office manager of the member organization shall, directly or 
indirectly, give or permit to be given anything of value, including 
gratuities, in excess of $300 per individual per year to any person, 
principal, proprietor, employee, agent or

[[Page 60187]]

representative of another person where such payment or gratuity is in 
relation to the business of the employer of the recipient of the 
payment or gratuity. Consistent with FINRA's determination, the 
Exchange believes that a $300 gift limit would permit the exchange of 
business courtesies while helping to guard against excessiveness, and 
reasonably reflects changes to purchasing power.\3\ The proposed rule 
further provides that a gift of any kind is considered a gratuity.
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    \3\ See Securities Exchange Act Release No. 104830 (February 12, 
2026), 91 FR 7570 (February 18, 2026) (Order Approving File No. SR-
FINRA-2025-003) (``FINRA Approval Order'').
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    Proposed Options 10, Section 27(b) provides that the Rule shall not 
apply to contracts of employment with or to compensation for services 
rendered by persons enumerated in paragraph (a), provided that there is 
in existence prior to the time of employment or before the services are 
rendered a written agreement between the member organization and the 
person who is to be employed to perform such services. Such agreement 
shall include the nature of the proposed employment, the amount of the 
proposed compensation, and the written consent of such person's 
employer or principal.
    Proposed Options 10, Section 27(c) provides that a separate record 
of all payments or gratuities in any amount known to the member 
organization, the employment agreement referred to in paragraph (b), 
and any employment compensation paid as a result thereof shall be 
retained by the member organization for the period specified by Rule 
17a-4 of the Exchange Act.
    Proposed Options 10, Section 27(d) provides that the Exchange may, 
in exceptional circumstances, taking into consideration all relevant 
factors, exempt any member organization, either unconditionally or on 
specified terms and conditions, from any provision of this Rule for 
good cause shown, provided that such exemption is consistent with the 
purpose of the Rule, the protection of investors, and the public 
interest. This proposed provision mirrors FINRA's exemptive relief 
authority in Rule 3220(d).\4\ Given the scope of proposed Options 10, 
Section 27, which would apply to gifts given to a wide range of 
recipients where the payment is in relation to the business of the 
employer of the recipient, and given the diversity of member 
organization sizes, structures, businesses, and distribution models, 
the Exchange believes it would be useful and appropriate to have the 
ability to provide relief from a particular provision of the Rule under 
specific factual circumstances.
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    \4\ See id.
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    Proposed Supplementary Material .01 (Gifts Incidental to Business 
Entertainment) would state that a gift given during the course of a 
business entertainment event is subject to Phlx Options 10, Section 27 
unless it is consistent with the requirements of proposed Supplementary 
Material .04 (Personal Gifts) or .06 (De Minimis Gifts and Promotional 
or Commemorative Items). This provision states that gifts given during 
business entertainment may fall within the exclusion for de minimis or 
promotional items.\5\ For the purpose of the $300 limit, the cost of 
the business entertainment event itself would not be included in the 
value of the gift.
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    \5\ See FINRA Approval Order at 6.
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    Proposed Supplementary Material .02 (Valuation of Gifts) would 
require member organizations to value gifts (other than tickets for 
sporting or other events) at cost, exclusive of tax and delivery 
charges, and would require member organizations to value tickets for 
sporting or other events at a higher of cost or face value. If gifts 
are given to multiple recipients, member organizations must record the 
names of each recipient and calculate and record the value of the gift 
on a pro rata, per-recipient basis, for purposes of ensuring compliance 
with the $300 limit in Phlx Options 10, Section 27(a). Requiring member 
organizations to value gifts (other than tickets for sporting or other 
events) at cost, rather than at the higher of cost or market value, 
reduces complexity and subjectivity because market value can be 
difficult and burdensome to determine, while distinguishing tickets for 
sporting or other events accounts for the fact that such tickets are 
commonly purchased on secondary markets at costs that differ from face 
value.
    Proposed Supplementary Material .03 (Aggregation of Gifts) would 
require member organizations to aggregate all gifts given by the member 
organization and each associated person of the member organization to a 
particular recipient over the course of the year for purposes of 
ensuring compliance with the $300 limit in Phlx Options 10, Section 
27(a), and would require each member organization to state in its 
procedures whether it is aggregating all gifts given by the member 
organization and its associated persons on a calendar year, fiscal 
year, or on a rolling basis beginning with the first gift to any 
particular recipient. The aggregation requirement would not apply to 
personal gifts under proposed Supplementary Material .04 or to gifts of 
de minimis value or promotional or commemorative items under proposed 
Supplementary Material .06, because those gifts are not subject to the 
gift limit in the first place. This would help ensure that persons who 
give multiple gifts in a year to the same recipient do not circumvent 
the gift limit.
    Proposed Supplementary Material .04 (Personal Gifts) would state 
that gifts that are given for infrequent life events (e.g., a wedding 
gift or a congratulatory gift for the birth of a child) are not subject 
to the restrictions in Phlx Options 10, Section 27(a) or the 
recordkeeping requirements in Phlx Options 10, Section 27(c), provided 
the gifts are customary and reasonable, personal in nature, and not in 
relation to the business of the employer of the recipient. In 
determining whether a gift is ``personal in nature and not in relation 
to the business of the employer of the recipient,'' member 
organizations should consider a number of factors, including the nature 
of any pre-existing personal or family relationship between the person 
giving the gift and the recipient and whether the associated person 
paid for the gift. When the member organization bears the cost of the 
gift, either directly or by reimbursing an associated person, the 
Exchange will presume that such gift is not personal in nature and 
instead is in relation to the business of the employer of the 
recipient.
    Proposed Supplementary Material .05 would state that bereavement 
gifts that are customary and reasonable are not considered to be in 
relation to the business of the employer of the recipient and, 
therefore, are not subject to the restrictions in Phlx Options 10, 
Section 27(a) or the recordkeeping requirements in Phlx Options 10, 
Section 27(c).
    Proposed Supplementary Material .06 (De Minimis Gifts and 
Promotional or Commemorative Items), at paragraph (a), would state that 
gifts of a de minimis value (e.g., pens, notepads, or modest desk 
ornaments) or promotional items of nominal value that display the 
member organization's logo (e.g., umbrellas, tote bags, or shirts) are 
not subject to the restrictions in Phlx Options 10, Section 27(a) or 
the recordkeeping requirements in Phlx Options 10, Section 27(c), 
provided that the value of the gift or promotional item is 
substantially below the $300 limit. Proposed Supplementary Material 
.06(b) would state that customary and reasonable solely decorative 
items commemorating a business transaction are not subject to the 
restrictions in Phlx Options 10,

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Section 27(a) or the recordkeeping requirements in Phlx Options 10, 
Section 27(c). Where an item is not solely decorative, such item would 
remain subject to the restrictions in Phlx Options 10, Section 27.
    Proposed Supplementary Material .07 (Donations Due to Federally 
Declared Major Disasters) would state that donations by a member 
organization or an associated person to any person, principal, 
proprietor, employee, agent or representative of another person to 
provide assistance to the individual for losses sustained in a natural 
event that the President has declared to be a major disaster, such as a 
wildfire, hurricane, tornado, earthquake, or flood, are not considered 
``in relation to the business of the employer of the recipient'' for 
purposes of Phlx Options 10, Section 27(a) and are not subject to the 
restrictions in Phlx Options 10, Section 27(a) or the recordkeeping 
requirements of Phlx Options 10, Section 27(c). This provision 
recognizes that the nature of such disasters is unpredictable and 
catastrophic.
    Proposed Supplementary Material .08 (Supervision and Recordkeeping) 
would state that the Exchange's supervision rules at Options 10, 
Section 7 require a member organization to have a supervisory system 
reasonably designed to achieve compliance with Phlx Options 10, Section 
27. The Exchange's supervision requirements for member organizations 
conducting options business with the public are set forth in Phlx 
Options 10, Section 7 (Supervision of Accounts). To the extent 
applicable, member organizations would look to the applicable 
supervision rules of the Exchange to establish and maintain a 
supervisory system reasonably designed to achieve compliance with Phlx 
Options 10, Section 27. To meet these standards, member organizations 
would be required to have systems and procedures reasonably designed to 
ensure that payments and gratuities in relation to the business of the 
employer of the recipient given by the member organization and its 
associated persons to employees of another person are (a) reported to 
the member organization; (b) reviewed for compliance with Phlx Options 
10, Section 27; and (c) maintained in the member organization's 
records. Such procedures must be reasonably designed to ensure that an 
associated person who is giving a payment or gratuity is not 
responsible for determining whether such payment or gratuity is in 
relation to the business of the recipient's employer. Member 
organizations are not required to maintain records of gifts that are 
consistent with the requirements of proposed Supplementary Material .04 
through .07. Requiring a person other than the associated person giving 
the gift to assess the nature of the gift is intended to encourage 
objectivity in making such determinations.
    Proposed Supplementary Material .09 (Gifts to a Member 
Organization's Associated Persons or Individual Retail Customers) would 
state that Phlx Options 10, Section 27 does not apply to gifts from a 
member organization to its own associated persons, or to gifts from a 
member organization or an associated person to individual retail 
customers. The Exchange believes proposed Supplementary Material .09 
would clarify, and improve awareness and understanding of, the scope of 
Phlx Options 10, Section 27.
    The Exchange believes the proposed rule change would promote 
efficiency without reducing protection for investors and the public 
interest. Because the Exchange proposes to adopt a rule substantially 
similar to FINRA Rule 3220, Members that are also FINRA members would 
be subject to a substantially similar rule when conducting business on 
the Exchange. In addition, Members that are not FINRA members would be 
subject to Phlx Options 10, Section 27 to the extent that such Members 
conduct business with the public.
    In addition, adopting Options 10, Section 27 in a form 
substantially similar to FINRA Rule 3220 would enable the Exchange to 
incorporate Options 10, Section 27 into the regulatory allocation 
agreement between the Exchange and FINRA pursuant to Rule 17d-2 under 
the Act (the ``17d-2 Agreement''). The 17d-2 Agreement allocates to 
FINRA regulatory responsibility, with respect to common members of the 
Exchange and FINRA, for the examination, investigation, and enforcement 
of compliance with certain federal securities laws, rules and 
regulations, and rules of the Exchange that the Exchange has certified 
as identical or substantially similar to FINRA rules.\6\ Because 
Options 10, Section 27 is currently reserved, this rule is not within 
the scope of the 17d-2 Agreement. Adopting the proposed rule in a form 
substantively similar to FINRA Rule 3220 would enable the Exchange to 
incorporate Options 10, Section 27 into the 17d-2 Agreement, further 
reducing duplicative regulation of member organizations that are also 
FINRA members.
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    \6\ See Securities and Exchange Release No. 99260 (January 2, 
2024), 89 FR 981 (January 8, 2024) (approving File No. 4-818).
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Technical Amendment
    The Exchange proposes a technical amendment to Options 10, Section 
7, Supervision of Accounts. The Exchange proposes to remove the 
following rule text, ``The deadline to submit the annual supervision-
related reports pursuant to Options 10, Section 7(g) and (h) will be 
extended from June 30, 2020 to July 31, 2020.'' This rule refers to a 
dated deadline.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\8\ 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.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    As noted above, the proposed rule is substantially similar to FINRA 
Rule 3220, thereby promoting uniform standards across the securities 
industry. The proposed rule change is designed to enable the Exchange 
to incorporate Options 10, Section 27 into the 17d-2 Agreement, further 
reducing duplicative regulation of Members that are also members of 
FINRA. For the avoidance of doubt, Options 10, Section 27 would equally 
apply to Exchange-only Member as the Exchange believes it appropriately 
protects against improprieties that might arise when substantial gifts 
or monetary payments are given to certain persons.
    Adopting a rule substantially similar to FINRA Rule 3220 promotes 
consistency and reduces the potential for confusion for member 
organizations that are also FINRA members, or that are members of other 
Nasdaq affiliated options exchanges, and that are subject to 
substantially similar rules on those markets. The proposed rule is 
designed to focus member compliance on the types of gifts that are more 
likely to be associated with the improprieties and improper incentives 
that the Rule is designed to address, and was also designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and, in general, to protect investors 
and the public interest.
    Specifically, adopting a $300 gift limit is reasonable because it 
reflects current and anticipated economic conditions while maintaining 
the fundamental limitations intended to minimize potential 
improprieties, such as

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conflicts of interest, that may arise when a member organization or an 
associated person gives an item of value to an employee of another 
person, such as an institutional customer, vendor, or counterparty. 
Providing exemptive authority is reasonably designed to provide the 
Exchange with flexibility to address issues that may arise under Phlx 
Options 10, Section 27, taking into account specific factual 
circumstances and differences among member organizations. Codifying and 
clarifying existing FINRA guidance that provides member organizations 
with clear and objective methods regarding the valuation, attribution, 
and aggregation of gifts, as well as the treatment of personal gifts, 
bereavement gifts, de minimis gifts and promotional items, 
commemorative items, and donations associated with federally declared 
major disasters, should facilitate compliance and clarify regulatory 
expectations. Codifying the obligation to maintain a supervisory system 
reasonably designed to achieve compliance with Phlx Options 10, Section 
27 clarifies regulatory expectations and reasonably imposes on member 
organizations the obligation to oversee compliance with the Rule.
    In addition, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(5) of the Act because it would harmonize 
Phlx's rulebook with the corresponding rules of other Nasdaq affiliated 
exchanges,\9\ thereby reducing regulatory fragmentation, promoting 
consistency across the Nasdaq affiliated options exchanges, and 
enabling the Exchange to apply and enforce a uniform standard of 
business conduct with respect to gifts and gratuities.
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    \9\ See The Nasdaq Stock Market LLC, Nasdaq Texas, LLC, and 
Nasdaq ISE, LLC (``ISE'') Options 10, Section 27. Of note, Nasdaq 
GEMX, LLC and Nasdaq MRX, LLC Options 10, Section 27 incorporate by 
reference ISE Options 10, Section 27.
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    In addition, the proposed rule change would enable the Exchange to 
incorporate Options 10, Section 27 into its regulatory allocation 
agreement with FINRA pursuant to Rule 17d-2 under the Act, thereby 
further reducing duplicative regulation of member organizations that 
are also FINRA members and facilitating FINRA's performance of its 
regulatory functions under that agreement.
Technical Amendment
    The Exchange's proposal to remove dated rule text from Options 10, 
Section 7 is a non-substantive amendment that does not impact the rule 
implementation.

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 proposed rule change is not 
intended to address competitive issues but, rather, is intended to 
create a rule for Phlx that is substantially similar to FINRA Rule 
3220. The proposed rule change would apply uniformly to all member 
organizations. Member organizations that are also FINRA members are 
subject to the amended FINRA Rule 3220. Member organizations that are 
not FINRA members would be subject to Phlx Options 10, Section 27 to 
the extent that they conduct business on the Exchange. Furthermore, the 
proposed rule change would provide harmonization between the Exchange's 
rules and comparable FINRA rules, resulting in less burdensome and more 
efficient regulatory compliance for member organizations that are also 
FINRA members, and facilitating FINRA's performance of its regulatory 
functions under the Exchange's regulatory allocation agreement with 
FINRA pursuant to Rule 17d-2 under the Act.
    The proposed rule change would not impose any burden on intra-
market competition because the Rule would apply uniformly to all member 
organizations. The proposed rule change would not impose any burden on 
inter-market competition because other national securities exchanges 
have adopted rules substantively similar to FINRA Rule 3220.\10\
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    \10\ See id.
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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 \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 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.
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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

    <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#0d7f786168206e6260606863797e4d7e686e236a627b"><span class="__cf_email__" data-cfemail="9be9eef7feb6f8f4f6f6fef5efe8dbe8fef8b5fcf4ed">[email&#160;protected]</span></a>. Please include 
file number SR-Phlx-2026-56 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-2026-56. 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 filing 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-2026-56 and should be submitted on 
or before October 13, 2026.


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-19298 Filed 9-21-26; 8:45 am]
BILLING CODE 8011-01-P


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