[Federal Register Volume 66, Number 160 (Friday, August 17, 2001)]
[Notices]
[Pages 43285-43287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-20706]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44672; File No. SR-Phlx-2001-67]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment Nos. 1 and 2 by the 
Philadelphia Stock Exchange, Inc. Relating to Automatic Price 
Improvement for Equities Trading in Decimals

August 9, 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 July 24, 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 
August 7, 2001, the Exchange amended the proposal.\3\ The Exchange 
filed another amendment on August 9, 2001.\4\ The Exchange filed this 
proposal under section 19(b)(3)(A) of the Act,\5\ and Rule 19b-(f)(6) 
\6\ thereunder, which renders the proposal effective upon filing with 
the Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule

[[Page 43286]]

change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See August 6, 2001 letter from Jurij Trypupenko, Esquire, 
Phlx to Alton S. Harvey, Division of Market Regulation 
(``Division''), Commission and attachments (``Amendment No. 1''). In 
Amendment No. 1, the Phlx clarified that the only proposed 
substantive change to the pilot program was to extend its operation 
through November 5, 2001. Amendment No. 1 also provided a clear 
explanation of proposed technical changes to rule language to 
conform the language to prior filings.
    \4\ See August 8, 2001 letter from Jurij Trypupenko, Esquire, 
Phlx to Alton S. Harvey, Division, Commission (``Amendment No. 2''). 
In Amendment No. 2, the Phlx amended the proposed rule language to 
clarify that the pilot will operate through November 5, 2001.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6). The Phlx requested that the 
Commission waive the 5-day prefiling notice requirement, and the 30-
day operative delay.
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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 November 5, 2001 its 
Philadelphia Stock Exchange Automated Communication and Execution 
System (``PACE'') \7\ price improvement pilot program (``pilot 
program''). The pilot program, which is found in Supplementary 
Material. .07 to Phlx Rule 229, has an automated price improvement 
feature based on a percentage of the spread between the bid and the 
offer. The current pilot program, established in SR-Phlx-2001-12, has 
been in effect since January 29, 2001.\8\
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    \7\ PACE is the Exchange's automated order delivery, routing, 
execution and reporting system for equities.
    \8\ See Securities Exchange Act Release No. 43901 (January 30, 
2001), 66 FR 8988 (February 5, 2001).
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    The only substantive change the Phlx proposes at this time is to 
extend the pilot program through November 5, 2001.
    The remaining changes proposed at this time are non-substantive 
formatting and language changes. These are cosmetic changes to ensure 
that the pilot program reflects amendments that were made in previous 
filings that were inadvertently overlooked. The underscored proposed 
language was added in SR-Phlx 00-54,\9\ but mistakenly did not appear 
in SR-Phlx-2001-12,\10\ and is therefore noted as additional language 
at this time. The bracketed language (except as noted below) was 
deleted by SR-Phlx-00-54, but mistakenly appeared in SR-Phlx-2001-12. 
It is now noted as deleted language to correct this mistake. The final 
bracketed phrase, which begins ``.03 or greater,'' appeared in SR-Phlx-
00-54. It was mistakenly included in SR-Phlx-2001-12, and is therefore 
noted now as deleted language.\11\
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    \9\ See Securities Exchange Act Release No. 43717 (December 13, 
2001) 65 FR 80976 (December 22, 2000) (SR-Phlx-00-54).
    \10\ See footnote 7, supra.
    \11\ The Phlx intends to file a proposed rule change in the 
future to remove references to fractional pricing from this and 
other rules.
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    The Exchange recognizes that all options currently trade in 
decimals, and is proposing the non-substantive language changes herein 
to conform the language of Phlx Rule 229 to prior filings. The 
following is the text of the proposed rule change. Additions are in 
italics. Deletions are in brackets.

Rule 229. Philadelphia Stock Exchange Automated Communications and 
Execution System (PACE)

    PACE provides a system for the automatic execution of orders on 
the Exchange equity floor under predetermined conditions. Orders 
accepted under the system may be executed on a fully automated or 
manual basis in accordance with the provisions of this Rule. 
Securities admitted to dealings on the equity floor are eligible for 
trading on the PACE System in which equity specialists and member 
organizations may choose to participate. The conditions under which 
orders will be accepted and executed are set forth below. When used 
in the Rule, PRL means a combined round-lot and odd-lot order, and 
PACE Quote means the best bid/ask quote among the American, Boston, 
Cincinnati, Chicago, New York, Pacific or Philadelphia Stock 
Exchange, or the Intermarket Trading System/Computer Assisted 
Execution System (``ITS/CAES'') quote, as appropriate. The PACE 
rules, conditions and guidelines do not apply to orders not on the 
system, and existing rules governing orders not on the system are 
not affected hereby.

Supplementary Material:

General

* * * * *
    .07
* * * * *
    (c) Price Improvement for PACE Orders
    (i) Automatic Price Improvement--Where the specialist 
voluntarily agrees to provide automatic price improvement to all 
customers and all eligible market orders in a security, 
automatically executable market and marketable limit orders in New 
York Stock Exchange and American Stock Exchange listed securities 
received through PACE for 599 shares or less shall be provided with 
automatic price improvement from the PACE Quote when received of \1/
16\ (or \1/64\ in the case of Nasdaq-100 Index Tracking Stock) for 
equities trading in fractions or, either $.01 or a percentage of the 
PACE Quote when the order is received for equities trading in 
decimals beginning at 9:30 A.M., except where:
    (A) a buy order would be improved to a price less than the last 
sale or a sell order would be improved to a price higher than the 
last sale (except as provided in (E) below); or
    (B) a buy order would be improved to the last sale price which 
is a downtick or a sell order would be improved to the last sale 
price which is an uptick (except as provided in (E) below). The PACE 
System will determine whether the last sale price is a downtick or 
an uptick. The PACE System does not recognize changes from the 
previous day's close. In these situations, the order is not eligible 
for automatic price improvement, and is, instead, automatically 
executed at the PACE Quote.
    A specialist may voluntarily agree to provide automatic price 
improvement to larger orders in a particular security to all 
customers under this provision.
    A specialist may choose to provide automatic price improvement 
for equities trading in fractions where the PACE Quote is (I) \3/16\ 
or greater, (II) [or] \1/8\ or greater, or (III) solely with respect 
to Nasdaq-100 Index Tracking Stock SM, \1/16\ or greater. 
[for equities trading in fractions;] For equities trading in 
decimals, a specialist may choose to provide automatic price 
improvement of (i) $.01 where the PACE Quote is [.03 or greater or 
.05 or greater for equities trading in decimals] either $.05 or 
greater, or $.03 or greater, or (ii) where the PACE Quote is $.02 or 
greater, a percentage of the PACE Quote when the order is received, 
up to 50%, rounded to the nearest penny, and at least $.01, in a 
particular security to all customers.
* * * * *
    .21 The automatic price improvement feature based on a 
percentage of the spread between the bid and offer in Supplementary 
Material .07(c)(i) will be in effect for a pilot period through 
November 5, 2001.
* * * * *

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 November 5, 2001, the Phlx's 
pilot program that incorporates automatic price improvement for 
equities trading in decimals based on a percentage of the spread 
between the bid and offer.\12\ In addition to extending the date of the 
pilot program, the proposed rule change

[[Page 43287]]

makes non-substantive cosmetic changes to correct the inaccuracies in 
the rule language inadvertently made in previous proposed rule changes.
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    \12\ See Securities Exchange Act Release No. 43901 (January 30, 
2001), 66 FR 8988 (February 5, 2001) (SR-Phlx-2001-12) 
(implementation of pilot program).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6 of the Act \13\ in general, and in particular, with 
section 6(b)(5),\14\ 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 a national market 
system, and, in general, protect investors and the public interest by 
widely extending automated price improvement to equities traded in 
decimals.
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    \13\ 15 U.S.C. 78f.
    \14\ 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 \15\ and 
Rule 19b-4(f)(6) thereunder.\16\ 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.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ For purposes of calculating the abrogation date, the 
Commission considers the 60-day period to have commenced on August 
7, 2001, the date the Phlx filed Amendment No. 1.
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    The Exchange has requested that the Commission finds good cause to 
waive the pre-filing notice requirement, and to designate the proposal 
to be both effective and operative upon filing because such designation 
is consistent with the protection of investors and the public interest. 
Waiver of these requirements will allow the pilot program to continue 
uninterrupted through November 5, 2001. For these reasons, the 
Commission finds good cause to designate that the proposal is both 
effective and operative upon filing with the Commission.\18\
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    \18\ 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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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, 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 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-2001-67, and should be 
submitted by September 7, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-20706 Filed 8-16-01; 8:45 am]
BILLING CODE 8010-01-M