[Federal Register Volume 64, Number 194 (Thursday, October 7, 1999)]
[Notices]
[Pages 54717-54719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26159]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41939; File No. SR-Phlx-99-16]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to the Deletion of Obsolete Procedural 
Provisions within Phlx Rules 500, 501, 508, and 523 Applicable to the 
Allocation, Evaluation and Securities Committee

September 28, 1999.
    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 July 15, 1999, as amended on September 21, 1999,\3\ the Philadelphia 
Stock Exchange, Inc. (``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.
    \3\ See Letter from Richard Rudolph, Counsel, Phlx, to Joshua 
Kans, Special Counsel, Division of Market Regulation (``Division''), 
Commission, dated September 20, 1999. Although the Exchange 
originally filed the proposal on July 15, 1999, the Phlx failed to 
provide the SEC with a 5-day written notice of its intent to file 
the proposal, and the July 15th proposal did not indicate that the 
proposed rule change would not become operative for 30 days after 
the date of the filing or for such shorter time as the Commission 
may designate. Both requirements must be satisfied before a ``non-
controversial'' rule can become immediately effective under 17 CFR 
240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend obsolete procedural provisions 
applicable to the Allocation, Evaluation and Securities Committee 
(``Allocation Committee'') and other committees. Specifically, the 
Exchange proposes to modify certain provisions governing when the 
Allocation Committee is required to consult with the Floor Procedure 
Committee (regarding equities specialist units), the Options Committee 
(regarding options specialist units) and the Foreign Currency Options 
Committee (regarding currency options specialist units). The Exchange 
also proposes to modify the notice requirement relating to the transfer 
of equity books or options classes among specialists.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Phlx represents that the purpose of the proposed rule change is 
to update Exchange Rules 500, 501, 508, and 523 to reflect the time 
intensity associated with the specialist appointment, transfer, and 
reallocation process. In particular, the proposed amendments are 
intended to eradicate obsolete procedural provisions to reflect actual 
practice, and to eliminate the Committee's frequent need to invoke the 
exemptive provision found in Exchange Rule 525.\4\
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    \4\ Phlx Rule 525 provides that the Allocation Committee shall 
have the authority to grant any exemption from any provision in Phlx 
Rules 500 through 599 (governing, among other things, allocations, 
reallocations and transfers of options classes and equity books) 
where necessary due to extraordinary circumstances, or impose any 
condition on any applicant or registrant that the Allocation 
Committee deems necessary or appropriate in

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[[Page 54718]]

    The rules governing the Allocation Committee were adopted in 1982 
as a pilot program \5\ and were subsequently approved on a permanent 
basis on June 26, 1991.\6\ Before then, the Floor Procedure Committee, 
and the Options Committee allocated and reallocated equity, and options 
books, respectively. Because the Allocation Committee was a new concept 
when it was formed, the Exchange deemed it necessary that the 
Allocation Committee consult with the respective floor committees.
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    \5\ See Securities Exchange Act Release No. 18975 (August 17, 
1982), 47 FR 37019 (August 24, 1982) (SR-Phlx-81-1). On February 23, 
1988, the pilot program was extended indefinitely until further 
action was taken by the Commission. See Securities Exchange Act 
Release No. 25388 (February 23, 1988), 53 FR 6725 (March 2, 1988) 
(SR-Phlx 87-42).
    \6\ See Securities Exchange Act Release No. 29369 (June 26, 
1991), 56 FR 30604 (July 3, 1991) (SR-Phlx-87-42).
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    Due to time constraints in the transfer and reallocation of equity 
and options books to specialist units, the Phlx now believes that it is 
often impractical for the Allocation Committee to consult with the 
respective floor committees. The Allocation Committee finds it 
necessary to meet often, with short notice, to expedite the transfer or 
reallocation of various equity issues and options to allow the new 
specialist units promptly to commence trading the transferred or 
reallocated security. The rules governing new specialist unit 
appointments, transfers and reallocations contain procedural guidelines 
that are time-consuming and cumbersome given the realities of today's 
securities markets.
    The proposed rule change would amend Phlx Rule 501(a) and (c) to 
eliminate the requirement that the Allocation Committee consult with 
the respective floor committees prior to appointing a specialist unit 
or requiring a specialist unit to obtain additional staff. The proposed 
rule change would also amend Phlx Rule 501(d) to eliminate the 
requirement that a specialist unit report certain staffing or capital 
changes to the respective floor committees, while continuing to require 
that specialist units report such changes to the Allocation Committee.
    The proposed rule change would also amend Phlx Rule 508, governing 
reallocations, in several ways. Although the proposed rule change would 
continue to require that proposed agreements among specialists to 
reallocate equities books or options cases be identified to the 
Allocation Committee prior to the proposed transfer, it eliminates the 
provision requiring 12 days advance notice. The proposed rule change 
would also eliminate the requirement that such agreements be provided 
in advance to the floor committees governing equities and foreign 
currency options. Because the Options Committee has requested that it 
be consulted prior to any such transfer, Rule 508 would retain the 
requirement that agreements to reallocate options classes be provided 
in advance to the Options Committee (although the 12 day advance notice 
requirement is also eliminated in this instance, as well).\7\
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    \7\ Commentary .01 to Phlx Rule 508 will continue to provide 
that a physical options book may not be transferred to a different 
location until 45 calendar days after the Options Committee 
disseminates its approval (although the Options Committee may 
shorten that time). Consistent with this commentary, the Options 
Committee needs to be consulted prior to any transfer of options 
classes among or between specialists on the Phlx options floor so 
that the Options Committee may ensure that different options classes 
are physically located in a manner that would not impose an 
unreasonable burden on the Phlx floor options traders who may 
participate in multiple trading crowds. Telephone conversation 
between Richard Rudolph, Counsel, Phlx, and Hong-anh Tran, Attorney, 
and Joshua Kans, Special Counsel, Division, Commission, dated 
September 27, 1999.
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    The Committee intends to seek input from the various other 
committees as warranted. Thus, the proposal would add a new paragraph 
``(b)'' added to Phlx Rule 500 to allow the Committee to consult with 
the various committees on certain issues as warranted, consistent with 
the exchange by-laws.\8\
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    \8\ Article X, Section 10-7(d) of the Exchange by-laws requires 
the Committee to consult with the various other committees as 
necessary to perform its functions.
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    Finally, the Exchange proposes to amend Phlx Rule 523 to eliminate 
the requirement that the Allocation Committee consult with the Floor 
Procedures Committee with respect to the Allocation Committee's ability 
to reallocate equity securities not traded on the Philadelphia Stock 
Exchange Automated Communication and Execution (``PACE'') system.
2. Statutory Basis
    The proposed rule change is consistent with Section 6 of the Act 
\9\ in general, and further the objectives of Section 6(b)(5) \10\ in 
particular in that it is designed to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
as well as to protect investors and the public interest. In particular, 
the proposed rule change is consistent with section 6(b)(5) because it 
provides for the expeditious continuity of trading in securities that 
are allocated to specialist units or reallocated or transferred from on 
specialist unit to another.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 inappropriate burden on competition.

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 by the 
Exchange.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The foregoing proposed rule change: (1) Does not significantly 
affect the protection of investors or the public interest; (2) Does not 
impose any significant burden on competition; and (3) Does not become 
operative for 30 days from September 21, 1999, the date that the filing 
was amended, and because the July 15, 1999 proposal satisfied the 
requirement that the Exchange give the Commission five business days 
written notice of the Exchange's intent to file the proposed rule 
change, it has become effective pursuant to Section 19(b)(3)(A) of the 
Act and Rule 19b-4(f)(6) thereunder.\11\ At any time within 60 days of 
the filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if its appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in the furtherance of the 
purposes of the Act.\12\
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    \11\ 17 CFR 240.19b-4(f)(6) (1999).
    \12\ 15 U.S.C. 78s(b)(3)(C).
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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.\13\ Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW, Washington, 
DC 20549-0609. Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the

[[Page 54719]]

Commission, and all written communications relating to the proposed 
rule change between the Commission and any persons, 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 inspection and copying in the 
Commission's Public Room. Copies of such filing will also be available 
for inspection and copying at the principal office of the Phlx. All 
submissions should refer to File No. SR-Phlx-99-16 and should be 
submitted by October 28, 1999.

    \13\ In approving the proposal, the Commission has considered 
the rule's impact on efficiency, competition and capital formation. 
15 U.S.C. 78c(f).
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    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 99-26159 Filed 10-6-99; 8:45 am]
BILLING CODE 8010-01-M