[Federal Register Volume 65, Number 200 (Monday, October 16, 2000)]
[Notices]
[Pages 61207-61208]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26464]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43421; File No. SR-PHLX-00-05]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment Nos. 1-4 by the 
Philadelphia Stock Exchange, Inc. Relating to Decimal Pricing

October 6, 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 January 10, 2000, the Philadelphia Stock Exchange, Inc. (``PHLX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the PHLX. 
On August 7, 2000, the Exchange filed an amendment to the proposed rule 
change, which amendment completely replaced and superseded the original 
filing.\3\ Subsequently, the PHLX filed three additional amendments to 
the proposed rule change.\4\ The PHLX filed the proposal pursuant to 
Section 19(b)(3)(A) of the Act,\5\ and Rule 19b-4(f)(6) thereunder,\6\ 
which renders the proposal effective upon filing with the Commission. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See August 4, 2000 letter from Jurij Trypupenko, Esq. 
(``Trypupenko''), PHLX, to Alton S. Harvey (``Harvey''), Division of 
Market Regulation (``Division''), SEC, and attachment (``Amendment 
No. 1''). Amendment No. 1 converts the original filing to a non-
controversial proposal pursuant to Section 19(b)(3)(A) of the Act 
and Rule 19b-4(f)(6) thereunder, which renders the proposal 
effective upon filing with the Commission. The Commission accepts 
the original proposal as notice of the PHLX's intention to file the 
proposed rule change as a non-controversial proposal. See 15 U.S.C. 
78s(b)(3)(A) and 17 CFR 240.19b-4(f)(6)(iii).
    \4\ See August 31, 2000 letter from Trypupenko, PHLX, to Harvey, 
Division, SEC and attachment (``Amendment No. 2''). In Amendment No. 
2, the PHLX deleted references to decimal ``trading'' and added 
language to refer to ``quoting'' and ``pricing'' in decimals. 
Amendment No. 2 also included proposed language to reflect an 
amendment to the Intermarket Trading System Plan regarding decimal 
pricing. See also September 7, 2000 letter from Trypupenko, PHLX, to 
Harvey, Division, SEC (``Amendment No. 3''). In Amendment No. 3, the 
Exchange deleted section (c) of proposed Rule 1034. See also October 
6, 2000 letter from Trypupenko, PHLX, to Harvey, Division, SEC 
(``Amendment No. 4''). In Amendment No. 4, the PHLX made minor, 
technical corrections to certain proposed rule language.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 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 PHLX proposes to amend its rules to provide for the 
implementation of decimal pricing, in accordance with the joint 
submission to the Commission by the PHLX and other interested parties 
dated July 24, 2000, entitled ``Decimals Implementation Plan for the 
Equities and Options Markets'' (``Decimal Plan'').
    Proposed new PHLX Rule 134 establishes that, during the 
decimalization phase-in period established by the Decimals Plan, 
securities will be priced in fractions and in decimals, and that the 
Exchange may issue decimalization guidelines to its members, member 
organizations, participants, and participant organizations regarding, 
among other things, what equities and options on equities will be 
quoted in decimals and when, the timing of partial or full conversion 
to decimal pricing, and open order conversion and dividend processing.
    In addition, the PHLX proposes to amend the following Options 
Advices: A-9, All-or-None Option Orders; A-11, Responsibility to Make 
Ten-Up Markets; B-11, Crossing, Facilitation and Solicited Orders; and 
F-6, Option Quote Parameters. The Exchange believes that the proposed 
amendments to these provisions are non-controversial in nature, and are 
necessary for the Exchange to convert from fraction to decimal pricing 
in accordance with the Decimals Plan.
    Finally, the PHLX proposes to amend Rule 2001 to conform to the 
rule to amendments made to the Intermarket Trading System Plan.
    The text of the proposed rule change, as amended, is available at 
the PHLX and at the Commission.

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 its proposal and discussed any 
comments it received regarding the proposal. The text of these 
statements may be examined at the places specified in Item IV below. 
The PHLX has prepared summaries, set forth in Sections A, B and C 
below, of the most significant aspects of such statements.

[[Page 61208]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The PHLX proposes to amend certain Exchange Rules and Options 
Advices to comply with the implementation of decimal pricing pursuant 
to the Commission's June 8, 2000 Order.\7\ The PHLX believes these 
changes are needed to implement decimal pricing on August 28, 2000, and 
thereafter in phases in accordance with the Decimals Plan.
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    \7\ Securities Exchange Act Release No. 42914 (June 8, 2000), 65 
FR 38010 (June 19, 2000).
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    The proposed amendments to certain Rules and Options Advices would 
clarify existing language that refers only to pricing in fractions. The 
PHLX proposes to add language that is applicable to both fractional and 
decimal pricing. Other PHLX Rules and Options Advices contain examples 
in fractions. The Exchange proposes to add decimal equivalents.
    The proposed rule changes incorporate the quoting increment 
requirements of the Decimals Plan. Thus, the proposed amendment to PHLX 
Rule 125 establishes the $.01 Minimum Price Variation (``MPV'') for 
equities pricing in decimals. The proposed amendment to PHLX Rule 1034 
establishes the $3.00 or higher and the $.05 MPV for options quoting at 
under $3.00, while PHLX Rule 1014 establishes quote spread parameters 
in fractions and decimals. Proposed PHLX Rule 134 allows the Exchange 
to issue guidelines to members as needed throughout the decimalization 
phase-in period.
2. Statutory Basis
    The PHLX believes that the proposal is consistent with Section 6 of 
the Act \8\ in general, and with the provisions of Section 6(b)(5) of 
the Act \9\ in particular, in that it is designed to promote just and 
equitable principals of trade, foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, remove impediments to and perfect the mechanism of a free 
and open market and a national market system, and, in general, protect 
investors and the public interest.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The PHLX does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comment 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) of the Act \10\ 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 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    The PHLX has requested that the Commission accelerate the operative 
date. The Commission finds good cause to designate the proposal, as 
amended, to become immediately operative upon filing, because such 
designation is consistent with the protection of investors and the 
public interest.\12\ Acceleration of the operative date will ensure 
that the PHLX is able to operate in accordance with the terms and 
conditions of the Decimals Plan. For these reasons, the Commission 
finds good cause to designate that the proposal, as amended, become 
operative immediately upon filing.\13\
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    \12\ The Decimals Plan contemplates that the options exchanges 
may wish to consider a pilot program for one-cent minimum price 
variations for quoting in a limited number of options (``Penny 
Pilot'') at some point in the implementing process. The Commission 
expects that, before implementing a Penny Pilot, the options 
exchanges will carefully coordinate on such issues as the selection 
and number of options to be included in the pilot to ensure the 
continued orderly operation of the markets and clearing 
organizations. In particular, the Commission expects that the 
options exchanges will consult with the Commission regarding the 
impact on market-wide capacity. Before implementing a Penny Pilot, 
each options exchange should also submit appropriate rule filings to 
the Commission under Section 19(b) of the Exchange Act.
    The Decimals Plan provides for minimum price variations for 
equities and options of no less than one cent. The Commission's June 
8th Order requires the Participants to submit joint or individual 
studies two months after Full Implementation (as defined in the 
Decimals Plan) regarding the impact of decimal pricing on systems 
capacity, liquidity, and trading behavior, including an analysis of 
whether there should be a uniform minimum quoting increment. If a 
Participant wishes to move to quoting in an increment of less than 
one cent, the Participant should include in its study a full 
analysis of the potential impact of such trading on the 
Participant's market and the markets as a whole. Within thirty days 
after submitting the study, and absent Commission act, the 
Participants individually must submit for notice, comment, and 
Commission action, proposed rule changes under Section 19(b) of the 
Act to establish their individual choice of minimum increments by 
which equities or options are quoted on their respective markets.
    \13\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f). For purposes of calculating the 60-day abrogation period, 
the Commission considers the period to begin as of the date of 
filing of the most recent substantive amendment, September 7, 2000.
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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 proposal 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, D.C. 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 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 inspection and copying in 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 file number SR-PHLX-00-05 and 
should be submitted by November 6, 2000.

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-26464 Filed 10-13-00; 8:45 am]
BILLING CODE 8010-01-M