[Federal Register Volume 66, Number 20 (Tuesday, January 30, 2001)]
[Notices]
[Pages 8252-8253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-2504]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43866; File No. SR-Phlx-01-01]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Accelerated Approval of Proposed Rule Change Relating to 
the Dissemination of Options Quotations With Size

January 22, 2001.

I. Introduction

    On January 8, 2001, the Philadelphia Stock Exchange, Inc. 
(``Exchange'' or ``Phlx'') submitted to the Securities and Exchange 
Commission (``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change seeking to amend Exchange Options 
Floor Procedure Advice (``OFPA'') F-7, Bids and Offers, to state that 
the size of any bid or offer in a quotation disseminated by the 
Exchange shall be equal to the AUTO-X guarantee for the quoted option 
and shall be firm, except that the disseminated size of bids and offers 
of customer limit orders shall be ten contracts and shall be firm, 
regardless of the actual size of such orders. Notice of the proposed 
rule change appeared in the Federal Register on January 18, 2001.\3\ 
The Commission received no comments on the proposal. This order

[[Page 8253]]

approves the proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 43822 (January 8, 
2001), 66 FR 4884.
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II. Description of the Proposal

    The Exchange proposes to codify its initial program for the 
dissemination of options quotations with size. The Exchange anticipates 
that, on or about January 22, 2001, the Options Price Reporting 
Authority (``OPRA'') will begin to support the dissemination of options 
quotations that include the size, or the number of contracts, 
represented in disseminated bids and offers on the Exchange.
    Although, the Phlx anticipates that OPRA will have the necessary 
systems capacity to accept and disseminate quotations with size by late 
January 2001, and that one or more options exchanges will be in a 
position to disseminate actual quotation size at the time, the Phlx 
will not have completed its application of the systems changes 
necessary to permit it to disseminate actual quotation size for a 
number of months.
    Therefore, until the Exchange's systems disseminate actual 
quotation size on a quote-by-quote basis, the Phlx proposes to 
establish by rule and periodically publish,\4\ on its web site and 
through regulatory circulars to Exchange members and member 
organizations, the quotation size for which its members' quotations are 
firm as required by Rule 11Ac1-1(d)(1)(i) under the Act.\5\
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    \4\ On November 17, 2000, the Commission amended Rule 11Ac1-1 
(``Quote Rule'') under the Act to require options exchanges and 
options market makers to publish firm quotes. The compliance date 
for the amended Quote Rule is April 1, 2001. See Securities Exchange 
Act Release No. 43591 (November 17, 2000), 65 FR 75439 (December 1, 
2000).
    \5\ Rule 11Ac1-1(d)(1)(i) under the Act, 17 CFR 240.11Ac1-
1(d)(1)(i). To accommodate the fact that the options markets did not 
yet disseminate quotes with size, the Commission provided an 
alternative to the Quote Rule, as applied in the equity markets, 
which allows options markets to establish by rule and periodically 
publish the size for which their quotations will be firm.
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    In addition, the Exchange proposes to voluntarily disseminate to 
OPRA the applicable automatic execution size guarantee for each quoted 
option, except that with respect to customer limit orders the Phlx 
would disseminate a size of 10 contracts, regardless of the actual size 
of the customer order. In all cases, the Phlx would be firm for its 
disseminated quotation size (without regard to whether the given order 
would be eligible for automatic execution via the Exchange's automatic 
execution feature, AUTO-X).\6\
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    \6\ In the event that certain Phlx specialist firms are able to 
develop and implement proprietary systems (called ``Specialized 
Quote Feeds'' or ``SQFs'') that are able to disseminate actual size 
prior to the Exchange's systems disseminating quotations with actual 
size on a floor-wide basis, the Phlx would undertake to file a 
further proposed rule change with the Commission requesting approval 
to disseminate actual size for those options classes assigned to 
such specialist firms.
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    Until the Phlx has completed its application of the systems changes 
necessary to automatically update its quotation size on a continuous 
basis, the Phlx believes that the instant proposal represents a vast 
improvement over the current system, by increasing transparency and 
providing the market place with considerably more information upon 
which to base order routing decisions.
    Finally, the Phlx expects to begin providing quotations with actual 
size on a floor-wide basis within one year. The Exchange represents 
that it will undertake to submit a further proposed rule change when 
the Exchange is able to disseminate actual size associated with its 
options quotes and customer limit orders.
    The Exchange represents that the instant proposed rule change does 
not affect in any respect the Exchange's obligations concerning non-
public customer orders.\7\ Further, the Exchange represents that prior 
to the April 1, 2001 mandatory compliance date of the amended Quote 
Rule, the Exchange will establish firm quote requirements with respect 
to orders received from broker-dealers, as required by the amended 
Quote Rule.
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    \7\ See Phlx Rule 1015(b) and Options Floor Procedure Advice A-
11.
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III. Discussion

    For the reasons discussed below, the Commission finds that the 
proposed rule change is consistent with the Act and the rules and 
regulations under the Act applicable to a national securities exchange. 
In particular, the Commission believes the proposed rule change is 
consistent with the requirements of section 6(b)(5) of the Act \8\ that 
the rules of an exchange be designed to facilitate transactions in 
securities, promote just and equitable principals of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and protect investors and the public 
interest.\9\ The Commission believes that the proposal should help to 
increase transparency by providing more information to investors in a 
readily accessible manner. In addition, the proposal should help to 
increase investor confidence in transactions on the Exchange by 
providing greater certainty to investors by ensuring that quotes made 
by market participants are firm for a specified number of contracts for 
customer orders.
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    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving this proposed rule change, the Commission has 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
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    The Commission believes that the Exchange's proposal to establish 
by rule and periodically publish the size for their best bid and offer 
in each options series that it listed on the Exchange is consistent 
with the amendments to the Quote Rule provided that the Exchange 
establish firm quote requirements for orders received from broker-
dealers prior to April 1, 2001. The Commission notes that the Exchange 
represents that is will periodically publish on its web site and 
through regulatory circulars to Exchange members and member 
organizations the size for which its members' quotations must be firm. 
Further, the Commission notes that the Exchange intends to provide 
quotations with actual size on a floor-wide basis within one year.
    Finally, the Commission, pursuant to section 19(b)(2) of the 
Act,\10\ finds good cause for approving the proposed rule change prior 
to the thirtieth day after the date of publication of notice thereof in 
the Federal Register. The Commission notes that the Exchange 
anticipates the OPRA may begin to support the dissemination of quotes 
with size as soon as January 22, 2001. The Commission believes that 
granting accelerated approval to this proposal should allow investors 
to receive more information as soon as that information can be made 
available through the OPRA system. Accordingly, the Commission finds 
that there is good cause, consistent with section 19(b)(2) of the 
Act,\11\ to approve the proposal on an accelerated basis.
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ 15 U.S.C. 78s(b)(2).
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IV. Conclusion

    It is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Phlx-01-01) is approved on 
an accelerated basis.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-2504 Filed 1-29-01; 8:45 am]
BILLING CODE 8010-01-M