[Federal Register Volume 66, Number 138 (Wednesday, July 18, 2001)]
[Notices]
[Pages 37511-37512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-17930]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44543; File No. SR-Philx-2001-26]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc.; Relating to ROT 
Vocalization Requirements for Options Quotations

July 12, 2001.

I. Introduction

    On March 5, 2001, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') 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 to add an express vocalization requirement for 
Phlx Registered Options Traders (``ROTs'') whose quotation for a 
particular option series is different from the disseminated quote. The 
Federal Register published the proposed rule change for comment on June 
6, 2001.\3\ The Commission received no comments on the proposed rule 
change. This order approves the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 44369 (May 30, 2001), 66 
FR 30496.
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II. Description of Proposal

    The Phlx proposes to amend Commentary .01 to Phlx Rule 1080 to 
clarify that the quote disseminated by the Exchange's Auto-Quote system 
\4\ or by a specialist's proprietary system that interfaces with the 
Exchange's Automated Options Market, which electronically prices 
options, is deemed to be the quote of all ROTs \5\ in the crowd unless 
the ROT has vocalized a different quote in a clear and audible manner 
with sufficient time for the specialist to take action to update the 
quote, if necessary.\6\
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    \4\ Auto-Quote is the Exchange's electronic options pricing 
system, which enables specialists to automatically monitor and 
instantly update quotations.
    \5\ A ROT is a regular member or a foreign currency options 
participant of the Exchange located on the trading floor who has 
received permission from the Exchange to trade options for his own 
account. See Phlx Rule 1014(b).
    \6\ The ROT must vocalize a different quote before an order 
enters the system. If an ROT believes that he or she has been 
unfairly allocated a portion of the order, he or she can challenge 
the allocation pursuant to Phlx Rule 124. Telephone call between 
Rick Rudolph, Counsel, Phlx, Terri Evans, Special Counsel, Division 
of Market Regulation (``Division''), Commission, and Sonia Patton, 
Staff Attorney, Division, Commission (May 24, 2001).

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[[Page 37512]]

    On September 11, 2000, the Commission issued an order \7\ that 
requires four of the five options exchanges, including the Phlx to 
adopt new, or amend existing, rules to include any practice or 
procedure, not currently authorized by rule, whereby market makers 
determine by agreement the spreads or option prices at which they will 
trade any option, or the allocation of orders in that option.\8\ The 
Exchange believes that the proposed rule change is responsive to, and 
compliant with, the Order.
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    \7\ See Order Instituting Public Administrative Proceedings 
Pursuant to Section 19(h)(1) of the Securities Exchange Act of 1934, 
Making Findings and Imposing Remedial Sanctions. Securities Exchange 
Act Release No. 43268 (September 11, 2000)(``Order'').
    \8\ See Section IV.B.j. of the Order.
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\9\ 
Specifically, the Commission believes that the proposed rule change is 
consistent with the Section 6(b)(5) \10\ requirements that the rules of 
an exchange be designed to promote just and equitable principles of 
trade, to remove impediments to and perfect the mechanisms of a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \9\ In approving the proposal, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule change will remove 
impediments to and perfect the mechanisms of a free and open market by 
clarifying that quotes on the Exchange are deemed to be the quotes for 
all ROTs in the crowd unless the ROT vocalizes a different quote.\11\ 
Further, the Commission believes that this requirement is consistent 
with the Quote Rule \12\ that is now applicable to the options 
exchanges, including the Phlx.\13\ Under the proposed rule change, ROTs 
would be required to execute orders at the disseminated price, unless 
the ROT to vocalized a different quote in a clear and audible manner 
with sufficient time for the specialist to update the quote, if 
necessary. The Commission notes that an ROT that believes that he or 
she has been unfairly allocated a portion of an order may challenge the 
allocation pursuant to Phlx Rule 124. The Commission believes that 
these procedures are reasonable and should permit the Exchange to 
function smoothly.
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    \11\ In approving this proposal, the Commission is not making 
any finding regarding the method by which quotes on the Exchange are 
derived in the first place.
    \12\ 17 CFR 240.11Ac1-1.
    \13\ See Securities Exchange Act Release No. 44383 (June 1, 
2001), 66 FR 30959 (June 8, 2001).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-Phlx-2001-26) is approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-17930 Filed 7-17-01; 8:45 am]
BILLING CODE 8010-01-M