[Federal Register Volume 65, Number 241 (Thursday, December 14, 2000)]
[Notices]
[Pages 78240-78242]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31898]


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SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-43692; File No. SR-PHLX-00-20)


Self-Regulatory Organizations; Notice of Filing of a Proposed 
Rule Change by the Philadelphia Stock Exchange, Inc., Relating to 
Trading Certain Over-the-Counter Securities, Nasdaq National Market 
Securities

December 8, 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 November 16, 2000, 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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to trade certain over-the-counter (``OTC'') 
securities, Nasdaq National Market (``Nasdaq/NM'') securities, on the 
Exchange, pursuant to unlisted trading privileges (``UTP'') under 
Section 12(f) of the Act.\3\ As discussed below, minor changes to Phlx 
rules are necessary to accommodate such trading, generally to revise 
the term ``Nasdaq/NM securities.'' The text of the proposed rule change 
is available at the Office of the Phlx, the Secretary, and at the 
Commission.
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    \3\ 15 U.S.C. 781(f).
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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
    In 1985, the Commission permitted the extension of UTP \4\ by 
national securities exchanges in certain OTC securities, provided that 
certain terms and conditions were satisfied. In particular, the 
Commission's willingness to grant UTP was conditioned, in part, on the 
approval of

[[Page 78241]]

a plan submitted by the interested exchanges and the National 
Association of Securities Dealers, Inc. (``NASD'') to consolidate and 
disseminate exchange and OTC quotation and transaction data in OTC 
securities upon which UTP was granted. On June 26, 1990, the Commission 
approved a joint industry plan (``OTC/UTP Plan'') submitted by the 
NASD, the American Stock Exchange (``Amex''), the Boston Stock Exchange 
(``BSE''), the Midwest Stock Exchange (currently operating as the 
Chicago Stock Exchange, or ``CHX'') and the Phlx.\5\
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    \4\ Section 12(f) of the Act describes the circumstances under 
which an exchange may trade a security that is not listed on the 
exchange, i.e., by extending UTP to the security. See 15 U.S.C. 
781(f).
    \5\ Securities Exchange Act Release No. 28146 (June 26, 1990), 
55 FR 27917 (July 6, 1990). Since that time, the CSE and PCX have 
become participants in the OTC/UTP Plan. See respectively Securities 
Exchange Act Release Nos. 42657 (April 10, 2000), 65 FR 20498 (April 
17, 2000); and 43165 (August 16, 2000), 65 FR 51878 (August 25, 
2000).
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    The OTC/UTP Plan provides for the collection from Plan participants 
and the consolidation and dissemination to vendors, subscribers and 
others of quotation and transaction information in ``eligible 
securities.'' The Plan defines ``eligible'' as any Nasdaq/NM security 
as to which UTP has been granted to a national securities exchange 
pursuant to section 12(f) of the Act or that is listed on a national 
securities exchange.\6\
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    \6\ The OTC/UTP Plan superseded an interim transaction reporting 
plan filed by the NASD and the CHX, approved by the Commission on 
April 29, 1987. See Securities Exchange Act Release No. 24407 (April 
29, 1987), 52 FR 17349 (May 7, 1987).
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    In late 1992, the Phlx obtained approval of a pilot program and 
accompanying rules to permit the trading of Nasdaq/NM securities on the 
Exchange pursuant to UTP (``Phlx OTC/UTP'' Pilot Program'').\7\ The 
Phlx began trading Nasdaq securities pursuant to the Pilot in February 
1993. The effectiveness of the Pilot was extended four times before the 
Phlx determined to cease trading such securities pending reorganization 
of its OTC/UTP program as a whole. The Phlx OTC/UTP Pilot Program 
expired on February 12, 1996.\8\ The Phlx intends to reinstate OTC/UTP 
trading in Nasdaq/NM securities in the near future, and, thus, seeks 
reinstatement of the Phlx OTC/UTP Pilot Program. The Phlx believes that 
such reinstatement requires only the minor revisions to the Phlx rules 
for the term ``Nasdaq/NM securities'' because the various rules 
implicated by OTC/UTP trading were amended in connection with the 
original Phlx OTC/UTP Pilot Program.
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    \7\ See Securities Exchange Act Release No. 31672 (December 30, 
1992), 58 FR 3054 (January 7, 1993) (order approving SR-Phlx-92-04).
    \8\ See Securities Exchange Act Release No. 36087 (August 10, 
1995), 60 FR 42637 (August 16, 1995).
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Proposal

    Reinstatement of the Phlx OTC/UTP Pilot Program will enable the 
trading of eligible Nasdaq/NM securities by Phlx specialists. The Phlx 
proposes to reinstate the Pilot for a six-month period.\9\ Initially, 
Phlx specialists will be provided with quotation generation capability, 
as well as the ability to manually enter and execute orders through a 
system designed by a third party vendor, TradinGear, separate from the 
Exchange's PACE System.\10\
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    \9\ The current number of Nasdaq/NM Securities that may be 
traded on a UTP basis is 1,000 securities. See Securities Exchange 
Act Release No. 41392 (May 12, 1999), 64 FR 27839 (May 21, 1999).
    \10\ PACE is the Exchange's Automated Communication and 
Execution System. PACE provides a system for the automatic execution 
of orders on the Exchange equity floor under predetermined 
conditions. See generally Phlx Rule 229 which includes the ability, 
if available, to use PACE as an order delivery system for Nasdaq/NM 
securities.
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    The Phlx proposes to trade these securities pursuant to its equity 
rules, where applicable. The following series of provisions that 
continue to appear in Phlx rules, specifically reference Nasdaq/NM 
securities, which are outlined more fully below and include Phlx Rules 
102; 105, Supplementary Material .01; 225; 226; 233; 455; and 606, 
previously approved on a pilot basis: \11\
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    \11\ See Securities Exchange Act Release No. 31672 (December 30, 
1992), 58 FR 3054 (order approving File No. SR-Phlx-92-94). The 
effectiveness of the Phlx OTC/UTP Pilot Program was extended four 
times, most recently through February 12, 1996.
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     Rule 102: Specifies that all Nasdaq/NM securities 
transactions must be conducted during the applicable Exchange trading 
floor hours.
     Rule 105: Includes language requiring that in the event of 
unusual market conditions, as determined by the Floor Procedure 
Committee, quotations in a given issue will not be subject to firmness 
provided that the Exchange notifies the processor of Nasdaq/NM 
securities.
     Rule 225: Incorporates Nasdaq/NM securities into the rule 
governing odd-lot orders.
     Rule 226: Incorporates Nasdaq/NM securities into the rule 
dealing with round-lot orders.
     Rule 233: Enables the Exchange to trade Nasdaq/NM 
securities pursuant to UTP.
     Rule 455: Exempts Nasdaq/NM securities from the short sale 
rule.
     Rule 606: Enables access by telephone or any other such 
access as may be established between the Exchange and the Nasdaq system 
to the Phlx assigned specialist for any Nasdaq system market maker.
    The Phlx is also proposing to add a reference to Phlx Rule 233(b) 
to permit receipt of handheld orders for purposes of the proposed rule 
change. The proposed rule change would also expand the method of 
communication between specialists on the Exchange's equity floor and 
each Nasdaq market maker to include ``such other access as may be 
established between the Exchange and the Nasdaq system.''
2. Statutory Basis
    The Exchange believes that reinstatement of the Phlx OTC/UTP Pilot 
Program is consistent with the requirements of the Act and the rules 
and regulations thereunder applicable to a national securities 
exchange, including sections 6(b)(5), 11A and 12(f) of the Act.\12\ 
Specifically, the Phlx believes that the proposed rule change is 
consistent with section 6(b)(5), because permitting Phlx specialists to 
trade eligible Nasdaq/NM securities should promote just and equitable 
principles of trade and facilitate transactions in securities, thereby 
removing impediments to and perfecting the mechanism of a free and open 
market in manner consistent with the protection of investors and the 
public interest.
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    \12\ 15 U.S.C. 78f(b)(5), 78k-1, and 781(f).
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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

    Written comments were not solicited or received with respect to the 
proposed rule change.

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

    The Exchange has requested accelerated effectiveness of the 
proposed rule change to promptly reinstate the Pilot. The Commission 
has determined to deny this request to provide an opportunity for the 
Exchange and the Commission to resolve questions and concerns created 
by the proposal but not answered in the proposal, and to provide for 
the full public comment period prior to potentially approving the 
proposed rule change to reinstate the Pilot. Accordingly, within 35 
days of the date of publication of this notice in the

[[Page 78242]]

Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. by order approve the proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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. 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 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 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 
Exchange. All submissions should refer to File No. SR-Phlx-00-20 and 
should be submitted by January 4, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-31898 Filed 12-13-00; 8:45 am]
BILLING CODE 8010-01-M