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Thursday, January 30, 2020

Options Regulatory Alert #2020 - 3
Relocation of the Nasdaq PHLX Rule Book

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  • Regulatory

Markets Impacted:

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The Nasdaq PHLX recently filed a rule change to relocate its rules into a new Rulebook Structure that is pending publication by the SEC. For ease of reference in locating the rules of this market, below is a guide.

General 1

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 1, Definitions, except Options Exchange Official which is relocated to Options 1, Section 1

General 2

Proposed New Rule NumberCurrent Rule Number
Section 1Reserved
Section 2

Rule 52. Fees, Dues and Other Charges; Rule 924. Obligations of Members and Member Organizations to the Exchange; Rule 56. Effect of Suspension or Termination on Payment of Fees; and Rule 63. Effect of Suspension or Termination (re-titled “Fees, Dues and Other Charges”)
Section 3

Rule 651. Exchange’s Cost of Defending Legal Proceedings
Section 4

Rule 985. Affiliation of Ownership Restrictions
Section 5

Reserved
Section 6

Reserved
Section 7

Reserved
Section 8

Reserved
Section 9

Reserved
Section 10

Reserved
Section 11

Reserved
Section 12

Rule 926. The Exchange's Business Continuity and Disaster Recovery Plan Testing Requirements for Member Organizations and PSX Participants Pursuant to Regulation SCI (re-titled “Business Continuity and Disaster Recovery”)
Section 13

Reserved
Section 14

Rule 990. Additional Requirements for Securities Listed on the Exchange Issued by Nasdaq or its Affiliates
Section 15

Reserved
Section 16

Reserved
Section 17

Rule 1015. Accommodations
Section 18

Rule 57. Members' Contracts and Rule 58. Exchange Contracts (re-titled “Contracts”)
Section 19

Rule 59. Deliveries through Registered Clearing Agencies
Section 20

Rule 62. Disapproval of Business
Section 21

Rule 64. Office Vacated by Suspension or Termination
Section 22

Rule 1094. Sponsored Participants

General 3

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 910. Qualification as Member Organization
Section 2Rule 901. Denial of and Conditions to Membership
Section 3Reserved
Section 4Reserved
Section 5Rule 900.2. Membership Applications
Section 6Reserved
Section 7Rule 600. Registration
Section 8Rule 602. Status Verification
Section 9Rule 900. Administration of Rules by Membership Department
Section 10Rule 900.1. General Powers and Duties of Membership Department
Section 11Rule 908. Rights and Privileges of A-1 Permits
Section 12Rule 911. Member and Member Organization Participation
Section 13Rule 921. Qualification; Designation of Executive Representative
Section 14Rule 912. Transfer of Accounts
Section 15Rule 922. Certificate of Incorporation
Section 16Rule 923. Review of Membership Department Decisions

General 9

Proposed New Rule NumberCurrent Rule Number
Section 1

Rule 782. Manipulative Operations

Section 2

Rule 741. Customers' Securities and Rule 771. Excessive Trading of Members (re-titled Customers’ Securities and Excessive Trading of Members”)
Section 3

Reserved
Section 4

Reserved
Section 5

Reserved
Section 6

Reserved
Section 7

Rule 783. Report of Financial Arrangements
Section 8

Reserved
Section 9

Reserved
Section 10

Rule 763. Recommendations to Customers (Suitability)
Section 11

Rule 764. Best Execution and Interpositioning
Section 12

Reserved
Section 13

Reserved
Section 14

Reserved
Section 15

Reserved
Section 16

Reserved
Section 17

Reserved
Section 18

Reserved
Section 19

Rule 754. Discretionary Power as to Customers' Accounts
Section 20

Rule 748. Supervision Rule
Section 21

761. Supervisory Procedures Relating to ITSFEA and to Prevention of Misuse of Material Nonpublic Information

Section 22

Reserved
Section 23

Reserved
Section 24

Reserved
Section 25

Rule 751. Accounts of Employees of Member Organizations

Section 26

Reserved
Section 27

Reserved
Section 28

Reserved
Section 29

Rule 749. Transactions for Employees of Exchange, etc. and Rule 750. Speculative Transactions for Employees of Certain Employers (re-titled “Transactions for Employees and Speculative Transactions for Employees of Certain Employers”)
Section 30

Reserved
Section 31

Reserved
Section 32

Reserved
Section 33

Reserved
Section 34

Reserved
Section 35

Rule 2040. Nonregistered Foreign Finders
Section 36

Reserved
Section 37

Reserved
Section 38

Reserved
Section 39

Rule 705. Fidelity Bonds
Section 40

Reserved
Section 41

Reserved
Section 42

Reserved
Section 43

Reserved
Section 44

Reserved
Section 45

Reserved
Section 46

Reserved
Section 47

Reserved
Section 48

Reserved
Section 49

Reserved
Section 50

Reserved
Section 51

Reserved
Section 52

Reserved
Section 53

Rule 774. Disruptive Quoting and Trading Activity Prohibited
Section 54

Rule 777. Guarantees Not Permitted
Section 55

Rule 601. Office, Other Than Main Offices
Section 56

Rule 602. Status Verification
Section 57

Rule 603. Control of Offices
Section 58

Rule 605. Advertisements, Market Letters, Research Reports and Sales Literature
Section 59

Rule 610. Notification of Changes in Business Operations
Section 60

Rule 625. Training
Section 61

Rule 704. Assignment of Interest of Partner
Section 62

Rule 745. Partial Payments
Section 63

Rule 746. Diligence as to Accounts
Section 64

Rule 747. Approval of Accounts
Section 65

Rule 752. Statements to Be Sent to Customers
Section 66

Rule 753. Notwithstanding Power of Attorney
Section 67

Rule 773. Participation in Joint Accounts
Section 68

Rule 784. Report of Options
Section 69

Rule 786. Periodic Reports
Section 70

Rule 796. Underwriting of Securities by Member Organizations

Equity Rules

Equities 7

Rule 607 titled “Covered Sales Fee” is being relocated to Equities 7, Section 5.

Options Rules

Options 1

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 1000, Applicability, Definitions and References

Options 2

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 507. Application for Approval as an SQT, RSQT, or RSQTO and Assignment in Options
Section 2Reserved
Section 3Rule 506. Allocation Application, Allocation, Reallocation, and Transfer; Rule 508. Transfer Application; and Rule 513. Voluntary Resignation of Options Privileges (re-titled “Allocation Application, Allocation, Reallocation, Transfer and Voluntary Resignation”
Section 4Rule 1014. Obligations of Market Makers (a-d)
Section 5Rule 1081. Electronic Market Maker Obligations and Quoting Requirements
Section 6Rule 1014. Obligations of Market Makers, subparagraph (e) only
Section 7Rule 1022. Securities Accounts and Orders of Specialists and Registered Options Traders
Section 8Reserved
Section 9Rule 510. Good Standing for Specialist, SQT, and RSQT
Section 10Rule 1068. Directed Orders
Section 11Rule 501. Specialist Appointment
Section 12Rule 1020. Registration and Functions of Options Specialists
Section 13Rule 1036. Affiliated Persons Of Specialists
Section 14Rule 175. Limitations on Options Market Making

Options 3

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 101. Hours of Business
Section 2Rule 1013. Units of Trading and Rule 1067. Precedence of Highest Bid and Lowest Offer (re-titled “Units of Trading”)
Section 3Rule 1034. Minimum Increments
Section 4Rule 1019. Entry and Display of Quotes
Section 5Rule 1096. Entry and Display of Orders
Section 6Rule 1082. Firm Quotations, except Rule 1082(a)(ii)(C)
Section 7Rule 1080 Electronic Acceptance of Quotes and Orders
Section 8Rule 1017. Openings In Options
Section 9Rule 1047. Trading Halts
Section 10Rule 1089. Electronic Execution Priority and Processing in the System and Rule 1035. Zero-Bid Option Series (this rule will remain titled “Electronic Execution Priority and Processing in the System”)
Section 11Reserved
Section 12Rule 1088. Qualified Contingent Cross Order (re-titled “Electronic Qualified Contingent Cross Order”)
Section 13Rule 1087. Price Improvement XL ("PIXL")
Section 14Rule 1098(a)-(f) Complex Orders on the System (re-titled “Complex Orders”)
Section 15Rule 1099. Risk Protections (re-titled “Simple Risk Protections)
Section 16Rule 1098(g)- (j) to be titled “Complex Orders Risk Protections”
Section 17Rule 1073. Kill Switch
Section 18Rule 1074. Detection of Loss of Communication
Section 19Rule 1090. Mass Cancellation of Trading Interest
Section 20Rule 1092. Nullification and Adjustment of Options Transactions including Obvious Errors
Section 21Rule 1016. Exchange Sharing of Phlx XL Participant-Designated Risk Settings (re-titled as “Access to and Conduct on Phlx”)
Section 22Rule 1097. Limitations on Order Entry
Section 23Rule 1070. Data Feeds and Trade Information
Section 24Rule 128. Price of Execution Binding
Section 25Reserved
Section 26Rule 1082(a)(ii)(C) to be titled “Message Traffic Mitigation”
Section 27Rule 652. Limitation of Exchange Liability and Reimbursement of Certain Expenses
Section 28Reserved

Options 4

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 1007. Designation Of Securities
Section 2Rule 1008. Rights And Obligations Of Holders And Writers
Section 3Rule 1009. Criteria for Underlying Securities/Rule 1011. Option Contracts To Be Traded
Section 4Rule 1010. Withdrawal of Approval of Underlying Securities or Options
Section 5Rule 1012. Series of Options Open for Trading
Section 6Reserved
Section 7Reserved
Section 8Reserved
Section 9Reserved
Section 10Rule 99. Backup Trading Arrangements
Section 11Rule 1057. U.S. Dollar-Settled Foreign Currency Option Closing Settlement Value

Options 4A

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 1000A. Applicability and Definitions (paragraph (a))
Section 2Rule 1000A. Applicability and Definitions (paragraph (b))
Section 3Rule 1009A. Designation of the Index
Section 4Reserved
Section 5Rule 1100A. Dissemination of Information
Section 6Rule 1001A. Position Limits
Section 7Reserved
Section 8Reserved
Section 9Reserved
Section 10Rule 1002.A Exercise Limits
Section 11Reserved
Section 12Rule 1101A. Terms of Option Contracts
Section 13Reserved
Section 14Reserved
Section 15Rule 1042A. Exercise of Option Contracts
Section 16Reserved
Section 17Rule 1006A. Other Restrictions on Options Transactions and Exercises
Section 18Rule 1047A. Trading Rotations, Halts or Reopenings
Section 19Rule 1102A. Limitation of Exchange Liability
Section 20Rule 1105A. Standard & Poor's® Index
Section 21Rule 1107A. Nasdaq, Inc. Indexes

Options 4B

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 1000D. Applicability of 1000D Series -Treasury Securities Options
Section 2Rule 1001D. Definitions - Treasury Securities Options
Section 3Rule 1002D. Position Limits - Treasury Securities Options
Section 4Rule 1003D. Exercise Limits - Treasury Securities Options
Section 5Rule 1004D. Reports Related to Position Limits and Liquidation of Positions - Treasury Securities Options
Section 6Rule 1005D. Reports Related to Position Limits and Liquidation of Positions - Treasury Securities Options
Section 7Rule 1006D. Criteria for Securities Underlying Treasury Securities Options
Section 8Rule 1007D. Withdrawal of Approval of Underlying Treasury Securities or Options
Section 9Rule 1008D. Terms of Treasury Securities Options
Section 10Rule 1009D. Series of Treasury Securities Options Open for Trading
Section 11Rule 1010D. Days and Hours of Business of Treasury Securities Options
Section 12Rule 1011D. Trading Rotations - Treasury Securities Options
Section 13Rule 1012D. Trading Halts and Suspension of Trading, Obvious and Catastrophic Errors - Treasury Securities Options
Section 14Rule 1013D. Minimum Increment and Meaning of Premium Bids and Offers for Treasury Securities Options
Section 15Rule 1014D. Specialist and Registered Option Trader Obligations and Electronic Trading - Treasury Securities Options
Section 16Rule 1015D. Accommodation Trading - Treasury Securities Options
Section 17Rule 1016D. Reconciliation of Unmatched Trades - Treasury Securities Options
Section 18Rule 1018D. Limit Book for Treasury Securities Options>
Section 19Rule 1019D. Bid / Ask Differentials - Treasury Securities Options
Section 20Rule 1020D. Allocation of Exercise Assignment Notices - Treasury Securities Options
Section 21Rule 1021D. Delivery and Payment - Treasury Securities Options
Section 22Rule 1022D. Margin Requirements - Treasury Securities Options
Section 23Rule 1023D. Furnishing of Books, Records and Other Information - Treasury Securities Options
Section 24Rule 1024D. Communication Links - Treasury Securities Options
Section 25Rule 1025D. Doing Business With the Public - Treasury Securities Options

Options 5

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 1083. Order Protection; Locked and Crossed Markets
Section 2Rule 1084. Order Protection
Section 3Rule 1086. Locked and Crossed Markets
Section 4Rule 1093. Away Markets and Order Routing (re-titled “Order Routing”)
Section 5Rule 1091. Cancellation of Orders and Error Account

Options 6

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 1037. Authorization to Give Up
Section 2Rule 1052. Responsibility Of Clearing Members For Exchange Options Transactions
Section 3Rule 1051. General Comparison And Clearance Rule
Section 4Reserved
Section 5Rule 1058. Transfer of Positions
Section 6Rule 1045. Off-Exchange RWA Transfers
Section 7Rule 1059. In-Kind Exchange of Options Positions and ETF Shares
Section 8Rule 1046. Clearing Arrangements
Section 9Rule 1048. Stock Transfer Tax
Section 10Rule 1053. Filing Of Trade Information
Section 11Rule 1054. Verification Of Trades And Reconciliation Of Uncompared Trades
Section 12Rule 1055. Reporting Of Compared Trades To Options Clearing Corporation
Section 13Rule 1056. Maintaining Office And Filing Signatures

Options 6A

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 1041. Options Contracts Of Suspended Members
Section 2Rule 1040. Failure To Pay Premium

Options 6B

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 1042. Exercise Of Equity Option Contracts
Section 2Rule 1043. Allocation of Exercise Notices
Section 3Rule 1044. Delivery and Payment

Options 6C

Proposed New Rule NumberCurrent Rule Number
Section 1Reserved
Section 2Reserved
Section 3Rule 721. Proper and Adequate Margin
Section 4Reserved
Section 5Reserved
Section 6Reserved
Section 7Rule 723. Prohibition on Free-Riding in Cash Accounts

Options 6D

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 703. Financial Responsibility and Reporting
Section 2Reserved
Section 3Reserved
Section 4Reserved

Options 6E

Proposed New Rule NumberCurrent Rule Number
Section 1Rule 760. Maintenance, Retention and Furnishing of Books, Records and Other Information
Section 2Rule 1003. Reporting Of Options Positions
Section 3Reserved
Section 4Rule 712. Independent Audit
Section 5Rule 785. Automated Submission of Trading Data
Section 6Reserved
Section 7Rule 980. Regulatory Services Agreements
Section 8Reserved
Section 9Reserved

    Options 7

    Rule 607 titled "covered Sales fee to Options 7, Options Pricing, is being relocated into Options 7, Section 12.

    Options 8

    Proposed New Rule NumberCurrent Rule Number
    Supplementary Material to Options 8, Section 24, "Bids and Offers - Premium"Rule 110, “Bids and Offers –Manners, ”Rule 119, “Precedence of Highest Bid” and Rule 120, “Precedence of Offers at Same Price

    Options 9

    Proposed New Rule NumberCurrent Rule Number
    Section 1Rule 707. Conduct Inconsistent with Just and Equitable Principles of Trade
    Section 2Reserved
    Section 3Reserved
    Section 4Reserved
    Section 5Rule 708. Acts Detrimental to the Interest or Welfare of the Exchange
    Section 6Reserved
    Section 7Reserved
    Section 8Reserved
    Section 9Reserved
    Section 10Reserved
    Section 11Reserved
    Section 12Reserved
    Section 13Rule 1001. Position Limits
    Section 14Reserved
    Section 15Rule 1002. Exercise Limits
    Section 16Reserved
    Section 17Rule 1004. Liquidation Of Positions
    Section 18Rule 1005. Limit On Uncovered Short Positions
    Section 19Rule 1006. Other Restrictions on Exchange Options Transactions and Exercises
    Section 20Reserved
    Section 21Rule 757. Anti-Money Laundering Compliance Program
    Section 22Reserved
    Section 23Reserved
    Section 24Rule 1050. Violation Of By-Laws And Rules Of Options Clearing Corporation

    Options 10

    Proposed New Rule NumberCurrent Rule Number
    Section 1Reserved
    Section 2Rule 1024. Conduct of Accounts for Options Trading subparagraph (a) (re-titled “Registration of Options Principals”)
    Section 3Reserved
    Section 4Reserved
    Section 5Reserved
    Section 6Rule 1024. Conduct of Accounts for Options Trading subparagraph (b) (re-titled “Opening of Accounts”)
    Section 7Rule 1025. Supervision of Accounts
    Section 8Rule 1026. Suitability
    Section 9Rule 1027. Discretionary Accounts
    Section 10Rule 1028. Confirmations and Complaints subparagraph (a) (re-titled “Confirmations to Customers”)
    Section 11Rule 1032. Statements of Accounts
    Section 12Reserved
    Section 13Rule 1029. Delivery of Options Disclosure Documents
    Section 14Rule 742. Restrictions on Pledge of Customers' Securities
    Section 15Reserved
    Section 16Reserved
    Section 17Reserved
    Section 18Reserved
    Section 19Reserved
    Section 20Rule 1049. Options Communications
    Section 21Reserved
    Section 22Rule 1028. Confirmations and Complaints subparagraph (b) (re-titled “Customer Complaints”)
    Section 23Rule 762. Telemarketing
    Section 24Rule 1030. Transactions With Issuers
    Section 25Rule 1031. Restricted Stocks

    Options 11

    Proposed New Rule NumberCurrent Rule Number
    Section 1A-1 Specialist as ROT
    Section 2F-1 Option Quote Parameters
    Section 3F-2 Failure to Comply with an Exchange Inquiry
    Section 4F-3 Affiliations
    Section 5F-4 Unusual Market Conditions
    Section 6F-5 Supervisory Procedures Relating to ITSFEA
    Section 7F-6 Minor Infractions of Position/Exercise Limits and Hedge Exemptions
    Section 8F-7 Clearing Agents' Responsibility for Carrying Positions in Market Maker Accounts
    Section 9F-8 Options Exchange Official Rulings
    Section 10F-9 Failure to Provide Notification of Changes in Business Operations
    Section 11F-10 Failure to Timely Submit Amendments to Form U4, Form U5 and Form BD
    Section 12F-11 Violations of Exercise and Exercise Advice Rules for Noncash-Settled Equity Option Contracts
    Section 13G-1 Index Option Exercise Advices

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