[Federal Register Volume 66, Number 101 (Thursday, May 24, 2001)]
[Notices]
[Pages 28768-28770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-13161]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44311; File No. SR-Phlx-2001-52]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc., Relating to an Interim Intermarket Linkage Program

May 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 May 14, 2001, 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 self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule changes 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, pursuant to Rule 19b-4 under the Act, proposes to adopt a 
rule authorizing implementation of ``interim linkages'' with the other 
options exchanges.\3\
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    \3\ On January 30, 2001, the Commission approved similar 
proposals submitted by the Chicago Board Options Exchange, Inc. 
(``CBOE'') and the International Securities Exchange LLC (``ISE''). 
See Securities Exchange Act Release No. 43904 (January 30, 2001), 66 
FR 9112 (February 6, 2001). On February 20, 2001, the Commission 
issued a notice of filing and immediate effectiveness of a similar 
proposal submitted by the Pacific Exchange, Inc. (``PCX''). See 
Securities Exchange Act Release No. 43986 (February 20, 2001), 66 FR 
12578 (February 27, 2001).
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II. Self-Regulatory Organization's Statement of the Propose 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. The 
text of these statements may be examined at

[[Page 28769]]

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 purpose of the proposed rule change is to implement certain 
aspects of an intermarket options linkage on an ``interim'' basis. The 
interim linkage would utilize existing market infrastructure to 
facilitate the sending and receiving of order flow between Phlx 
Specialists and later, Registered Options Traders, and their 
counterparts on the other options exchanges as an interim step towards 
development of a ``permanent'' linkage. The Exchange proposes that the 
interim linkage would be in effect on a pilot basis until January 31, 
2002.
    By way of background, the Commission has approved a linkage plan 
that now includes all five options exchanges.\4\ The options exchanges 
continue to work towards implementation of this linkage, which include 
contracting with a third party to build a linkage infrastructure. Since 
this will take a significant amount of time, the options exchanges have 
discussed implementing an ``interim'' linkage. Such a linkage would use 
the existing market infrastructure to route orders between market 
makers on the participating exchanges in a more efficient manner.
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    \4\ See Securities Exchange Act Release Nos. 43086 (July 28, 
2000), 65 FR 48023 (August 4, 2000); 43573 (November 16, 2000), 65 
FR 70851 (November 28, 2000); and 43574 (November 16, 2000), 65 FR 
70850 (November 28, 2000).
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    The key component of the interm linkage would be the participating 
exchanges opening their automated customer execution systems, on a 
limited basis, to market maker orders. Specifically, market makers, 
such as Phlx Specialists and later Registered Options Traders, would be 
able to designate certain orders as ``customer'' orders, and thus, 
would receive execution under the automatic execution parameters of 
participating exchanges pursuant to the interim linkage.\5\
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    \5\ As with other orders that are executed under the automatic 
execution parameters of the Exchange, when a limit order constitutes 
the Exchange's best bid or offer, the specialist executes the 
incoming order against that order.
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    This proposed rule would authorize the Phlx to implement bilateral 
or multilateral interim arrangements with the other exchanges to 
provide for equal access between market makers on our respective 
exchanges. The Exchange currently anticipates that initial arrangements 
would allow Phlx Specialists and their equivalents on the other 
exchanges, when they are holding customer orders, to send orders 
reflecting the customer orders to the other market for execution when 
the other market has a better quote. Such orders would be limited in 
size to the lesser of the size of the two markets' ``firm'' quotes for 
customer orders. The Exchange expects that the interim linkage may 
expand to include limited access for pure principal orders of no more 
than 10 contracts.
    Under the proposed rule, all interim linkage orders must be 
``immediate or cancel'' (that is, they cannot be placed on an 
exchange's limit order book), and a market maker can send a linkage 
order only when the other (receiving) market is displaying the best 
national bid or offer and the sending market is displaying an inferior 
price. This should allow a Phlx Specialist to access the better price 
for its customer. In addition, if the interim linkage includes 
principal orders, it would allow market makers to attempt to ``clear'' 
another market displaying a superior quote. Any exchange participating 
in the interim linkage will implement heightened surveillance 
procedures to help ensure that their respective market makers send only 
properly-qualified orders through the interim linkage.
    Phlx Specialist' participation in the interim linkage will be 
voluntary. Only when a Phlx Specialist and their equivalent on another 
exchange believe that this form of mutual access would be advantageous 
will the exchanges employ the interim linkage procedures. The Exchange 
believes that the interim linkage should benefit investors and should 
provide useful experience to help the exchanges in implementing the 
full linkage.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \6\ in general and furthers the objectives 
of section 6(b)(5) \7\ in particular 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 regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism for a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

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

    The proposed rule change has been filed by the Exchange as a ``non-
controversial'' rule change pursuant to section 19(b)(3)(A) of the Act 
\8\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\9\ Because the 
foregoing proposed rule change: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, does not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest; provided that the 
Exchange has given the Commission written notice of its intent to file 
the proposed rule change at least five business days prior to the 
filing date of the proposed rule change, it has become effective 
pursuant to section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6).
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission waive the 5-day pre-
filing requirement and accelerate the operative date of the proposal. 
The Commission finds that it is appropriate to accelerate the operative 
date of the proposal and designate the proposal to become operative 
today.\10\
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    \10\ 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).
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    The Commission finds good cause for waiving the 5-day pre-filing 
requirement and accelerating the operative date of the proposed rule 
change. The Commission notes that it has approved similar proposals 
filed by the ISE and the CBOE.\11\ Acceleration of the

[[Page 28770]]

operative date should enable investors effecting transactions on the 
Phlx to obtain better prices displayed on other exchanges and thus, is 
consistent with section 6(b)(5) of the Act.\12\
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    \11\ See note 4, supra.
    \12\ 15 U.S.C. 78f(b)(5).
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    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 Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. 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 SR-Phlx-2001-52 and should be 
submitted by June 14, 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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Jonathan G. Katz,
Secretary.
[FR Doc. 01-13161 Filed 5-23-01; 8:45 am]
BILLING CODE 8010-01-M