[Federal Register Volume 65, Number 177 (Tuesday, September 12, 2000)]
[Notices]
[Pages 55069-55071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23284]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43243; File No. SR-Phlx-00-49]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change and Amendment 
No. 1 by the Philadelphia Stock Exchange, Inc. Relating to the 
Reporting of Options Transactions

September 1, 2000.
    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 June 5, 2000, the Philadelphia Stock Exchange (``Phlx'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change relating to the 
reporting of options transactions. The Phlx filed Amendment No. 1 to 
this proposal on August 31, 2000. \3\ The proposed rule change, as 
amended, is 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, as amended, from 
interested persons and to grant accelerated approval to the proposed 
rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Richard S. Rudolph, Counsel, Phlx to Deborah 
Flynn, Senior Special Counsel, Division of Market Regulation 
(``Division''), Commission, dated August 31, 2000 (``Amendment No. 
1''). Amendment No. 1 requests the Commission to approve the 
proposed rule change on an accelerated basis and clarifies that if a 
member fails to report an options transaction within 90 seconds, the 
report would be considered ``late.'' Additionally, Amendment No. 1 
revises the proposed rule language to clarify that a pattern or 
practice of late reporting, without exceptional circumstances, would 
be considered conduct inconsistent with just and equitable 
principles of trade. Amendment No. 1 also clarifies that the three-
year running calendar basis for the imposition of the fine schedule 
in OFPA F-2 begins to run on the date of the first infraction. 
Amendment No. 1 supersedes a previous amendment filed with the 
Commission on August 23, 2000. See letter from Richard S. Rudolph, 
Counsel, Phlx to Nancy Sanow, Assistant Director, Divsion, 
Commission, dated August 22, 2000.
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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 Exchange Rule 1051, ``Reporting, 
General Comparison and Clearance Rule,'' and Options Floor Procedure 
Advice (``OFPA'') F-2, ``Allocation, Time Stamping, Matching and Access 
to Matched Trades,'' to require the reporting of options transactions 
within 90 seconds after execution. The text of the proposed rule 
change, as amended, is set forth below. Additions are in italics.

    F-2 Allocation, Time Stamping, Matching and Access to Matched 
Trades
    (a) In order to facilitate timely tape reporting of executed 
trades, it is the duty of the largest participant in a trade to 
allocate, match and time stamp manually executed trades as well as 
to submit the matched trade to the appropriate person at the 
respective Specialist post immediately upon execution. A member or 
member organization initiating an options transaction, whether 
acting as principal or agent, must report or ensure that the 
transaction is reported within 90 seconds after execution to the 
tape. Transactions not reported within 90 seconds after execution 
shall be designated as late. A pattern or

[[Page 55070]]

practice of late reporting without exceptional circumstances may be 
considered conduct inconsistent with just and equitable principles 
of trade. If there is only one seller and one buyer, the seller is 
responsible. Execution times must be recorded on the reverse side of 
one or more of the tickets to a matched trade.
    (b) Once a trade has been matched and submitted for reporting at 
the post, the respective Specialist Unit must preserve the matched 
tickets for a period of not less than three years.
    (c) Member access to tickets comprising a matched trade is 
available to any participant of that trade, as well as the 
respective Specialist and any Floor Official acting in his capacity 
as a Floor Official. Requests to review trade matches must be made 
with the Specialist Unit.

Fine Schedule (Implemented on a three year running calendar basis)

F-2
1st Occurrence--$100.00
2nd Occurrence--$250.00
3rd Occurrence--$500.00
4th and Thereafter--Sanction is discretionary with Business Conduct 
Committee

    Rule 1051. Reporting, General Comparison And Clearance Rule
    (a) A member or member organization initiating an options 
transaction, whether acting as principal or agent, must report or 
ensure that the transaction is reported within 90 seconds after 
execution to the tape. Transactions not reported within 90 seconds 
after execution shall be designated as late. A pattern or practice 
of late reporting without exceptional circumstances may be 
considered conduct inconsistent with just and equitable principles 
of trade.
    (b) All Exchange options transactions shall be reported at the 
time of execution to the Exchange for comparison of trade 
information at the specialist's post and all compared transactions 
shall be cleared through the Options Clearing Corporation and shall 
be subject to the rules of the Options Clearing Corporation.

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 Phlx 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 III below. The Phlx 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 Phlx is proposing to amend Phlx Rule 1051 and OFPA F-2 to 
require timely tape reporting of executed trades on the Options Floor. 
Under the proposal, as amended, the largest participant in a trade 
would be required to allocate, match, and time stamp manually executed 
trades, as well as to submit the matched trade to the appropriate 
person at the respective specialist post immediately upon execution and 
no later than 90 seconds following execution of the trade. 
Additionally, the proposal would require exchange options transactions 
to be reported to the tape immediately upon execution and no later than 
90 seconds after execution of the trade. Under the proposed rule, 
transactions not reported within 90 seconds after execution would be 
designated as late. Patterns or practices of late reporting without 
exceptional circumstances may be considered conduct inconsistent with 
just and equitable principles of trade.\4\
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    \4\ In Amendment No. 1, the Phlx incorporated this language into 
Phlx Rule 1051 and OFPA F-2. The Exchange also clarified that a 
failure to report a single options transaction within 90 seconds 
would be considered a violation of the proposed options rule. See 
Amendment No. 1, supranote 3.
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    Currently, Exchange Rule 1051 requires executed trades to be 
reported at the time of execution. The Exchange's proposal would 
require immediate trade reporting no later than 90 seconds following 
execution. The Phlx believes that setting a specific time limit for 
trade participants to report transactions should enable the Exchange's 
Market Surveillance Department and Enforcement Department to evaluate 
and determine accurately any violation of the rule.
    The Phlx believes that the proposed rule change will facilitate 
transparency and help to present a more accurate picture of market 
activity. Additionally, the Phlx believes that the proposal will help 
to protect investors and the public interest by requiring the prompt 
reporting of executed trades to the tape that, in turn, will enable the 
Exchange to better monitor compliance with order handling and 
transparency rules, including limit order protection, priority, and 
best execution.
2. Statutory Purpose
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\5\ in general, and furthers the 
objectives of Section 6(b)(5) \6\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of change, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 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 burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received written comments on the 
proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, N.W., 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 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 at the Commission's Public Reference 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 the File 
No. SR-Phlx-00-49 and should be submitted by October 3, 2000.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    The Commission finds that the proposal is consistent with the 
requirements of the Act.\7\ In particular,

[[Page 55071]]

the Commission finds that the proposed rule change furthers the 
objectives of Section 6(b)(5),\8\ in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and national market system.
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    \7\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Commission believes that the proposal, as 
amended, which requires the reporting of all options transactions with 
90 seconds of execution, should help to prevent fraudulent and 
manipulative acts and practices, as well as to promote just and 
equitable principles of trade. The Commission believes that the 
proposed rule change, as amended, should enable the Exchange to provide 
accurate trade information to investors more efficiently. The enhanced 
transparency associated with timely trade reporting should facilitate 
price discovery for investors and assist the Phlx's surveillance of its 
members' trading in listed options.
    The Phlx has requested that the Commission find good cause for 
approving the proposed rule change, as amended, prior to the thirtieth 
day after the date of publication of notice in the Federal Register. 
The Commission believes the proposal is substantially similar to the 
Amex proposal to amend Amex rules to require the reporting of options 
transactions within 90 seconds of execution that was recently reviewed 
and approved by the Commission.\9\ The Amex proposal was noticed for 
the full 21 day comment period and no comments were received. 
Accordingly, the Commission finds good cause pursuant to Section 
19(b)(2) of the Act \10\ to accelerate approval of the proposed rule 
change, as amended.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-Phlx-00-49), as amended, is 
approved on an accelerated basis.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Margaret H. McFarland,
Deputy Secretary.
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    \9\ See Securities Exchange Act Release No. 43233 (Aug. 30, 
2000) (approving SR-Amex-00-03).
    \10\ 15 U.S.C. 78s(b)(2).
    \11\ Id.
    \12\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 00-23284 Filed 9-11-00; 8:45 am]
BILLING CODE 8010-01-M