[Federal Register Volume 66, Number 78 (Monday, April 23, 2001)]
[Notices]
[Pages 20511-20512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-9965]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44185; File No. SR-Phlx-2001-20]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 by the 
Philadelphia Stock Exchange, Inc. To Extend a Pilot Program Relating to 
Price Protection in a Decimals Environment

April 16, 2001.
    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 March 1, 2001, the Philadelphia Stock Exchange Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. On April 
13, 2001, the Exchange amended the proposal.\3\ The Exchange filed this 
proposal under section 19(b)(3)(A) of the Act,\4\ and Rule 19b-4(f)(6) 
\5\ thereunder, which renders the proposal effective upon filing with 
the Commission. 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 April 23, 2001 letter from Jurij Trypupenko, Esquire, 
Phlx to Alton S. Harvey, Division of Market Regulation, SEC and 
attachments (``Amendment No. 1''). In Amendment No. 1, the Phlx 
converted the proposed rule change to a non-controversial proposal 
pursuant to Rule 19b-4(f)(6). 17 CFR 240.19b-4(f)(6). In addition, 
the Phlx changed the number of the proposed rule change from SR-
Phlx-01-20 to SR-Phlx-2001-20, and made other technical, non-
substantive changes to the proposal.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 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 extend through August 31, 2001 the 
operation of the pilot program that amended Phlx Rule 229, Philadelphia 
Stock Exchange Automated Communication and Execution System (PACE) 
(``Pilot''),\6\ as part of implementing industry-wide decimalization 
and securities pricing in fractions and decimals.\7\ The text of the 
proposed rule change is available at the Phlx and at the Commission.
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    \6\ PACE provides a system of automatic delivery and execution 
of orders on the Phlx equity floor under predetermined conditions.
    \7\ The Pilot was established in SR-Phlx-00-08. See Securities 
Exchange Act Release No. 43206 (August 25, 2000), 65 FR 53250 
(September 1, 2001). The Commission notes that full implementation 
of decimal pricing in equities and options was completed on April 9, 
2001. While the rules governing the Pilot make reference to 
fractional pricing, the Commission did not require the Phlx to amend 
its rules at this time to reflect full implementation of decimal 
pricing. The Phlx should, at some point in the future, file a 
proposed rule change to remove references to fractional pricing from 
its rules.
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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
    The Phlx proposes to extend, through August 31, 2001, the 
effectiveness of the Pilot that amends Phlx Rule 229 and institutes, 
for equities priced in decimals, among other things, decimal-based 
requirements relating to mandatory double-up/double-down price 
protection and automatic price improvement, as indicated below.
    Supplementary Material .05 to Rule 229 establishes that if the PACE 
Quote \8\ at the time of order entry into the system reflects a \1/8\ 
point spread or less (the difference between the best bid and offer) 
for equities trading in fractions, or $.05 or less for equities trading 
in decimals, that order will be executed immediately.
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    \8\ The PACE Quote is the National Best Bid/Offer.
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    Supplementary Material .07(c) to Rule 229 establishes that 
automatic price improvement and mandatory manual double-up/double-down 
price protection applies to both fractional and decimal priced 
equities. The Pilot provides that specialists may choose to provide 
automatic price improvement of $.01 to all customers and all eligible 
market orders in an equity trading in decimals (where the PACE Quote is 
either $.05 or greater or $.03 or greater), or \1/16\ to equities 
trading in fractions (where the PACE Quote is \3/16\ or greater or \1/
8\ or greater).\9\ And specialists that

[[Page 20512]]

do not agree to provide price improvement in a security have to provide 
manual double-up/double-down price protection in any instance where the 
bid/ask of the PACE Quote is \1/8\ or greater for equities trading in 
fractions, or $.05 or greater for equities trading in decimals.\10\
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    \9\ The Exchange previously established a six-month pilot 
program relating to price improvement based on a percentage of the 
spread between the bid and offer. See Securities Exchange Act 
Release No. 43901 (January 30, 2001), 66 FR 8988 (February 5, 2001) 
(SR-Phlx 01-12).
    \10\ Double-up/double-down is defined in Supplementary Material 
.07(c)(ii) to Phlx Rule 229 as a trade that would be at least \1/4\ 
(up or down) for equities trading in fractions or $.10 (up or down) 
for equities trading in decimals from the last regular way sale on 
the primary market, or, \1/4\ for equities trading in fractions or 
$.10 for equities trading in decimals from the regular way sale that 
was the previous intra-day change on the primary market.
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    The Exchange believes that extension of the Pilot through August 
31, 2001 would be conducive to the proper implementation of decimal 
pricing, and should facilitate the transition to decimal pricing.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act \11\ in general, and in particular, with 
Section 6(b)(5),\12\ in that it promotes just and equitable principles 
of trade, fosters cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitates transactions in securities, removes impediments to and 
perfects the mechanism of a free and open market and national market 
system, and, in general, protects investors and the public interest. 
The Phlx also believes the proposal will facilitate the orderly 
transition to decimal pricing.
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    \11\ 15 U.S.C. 78f.
    \12\ 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.

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 \13\ and 
Rule 19b-4(f)(6) thereunder.\14\ 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.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ For purposes of calculating the 60-day abrogation date, the 
Commission considers the 60-day period to have commended on April 
13, 2001, the date of the Phlx filed Amendment No. 1.
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    The Exchange has requested that the Commission accelerate the 
operative date. The Commission finds good cause to designate the 
proposal to become operative immediately because such designation is 
consistent with the protection of investors and the public interest. 
The Commission believes that the proposal should be effective and 
operative immediately upon filing to ensure there is no lapse in the 
Pilot's effectiveness. For these reasons, the Commission finds good 
cause to designate that the proposal is both effective and operative 
upon filing with the Commission.\16\
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    \16\ 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). The Commission accepted the Phlx's initial filing on March 
1, 2001, as satisfying the five-day pre-filing notice requirement 
under Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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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 
Exchange. All submissions should refer to file number SR-Phlx-2001-20, 
and should be submitted by May 14, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-9965 Filed 4-20-01; 8:45 am]
BILLING CODE 8010-01-M