[Federal Register Volume 66, Number 187 (Wednesday, September 26, 2001)]
[Notices]
[Pages 49240-49242]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24002]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44818; File No. SR-Phlx-2001-81]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. To Extend a PACE Order Execution and Price Protection 
Pilot Program

September 19, 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 August 29 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. The 
Exchange filed this proposal under Section 19(b)(3)(A) of the Act,\3\ 
and Rule 19b-4(f)(6) \4\ 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 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.
---------------------------------------------------------------------------

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'') \5\ price improvement pilot program (``pilot 
program''). The pilot program, which is found in Supplementary Material 
.05 and .07(c)(ii) to Phlx Rule 229, incorporates decimal pricing into 
two PACE provisions--immediate execution of certain market orders 
through the Public Order Exposure System (``POES'') and mandatory 
double-up/double-down price protection for equities quoting in 
decimals. The pilot

[[Page 49241]]

program has been in effect since August 25, 2000.\6\
---------------------------------------------------------------------------

    \5\ PACE is the Exchange's automated order delivery, routing, 
execution and reporting system for equities.
    \6\ The pilot program was established in SR-Phlx-00-08. See 
Securities Exchange Act Release No. 43206 (August 25, 2000), 65 FR 
35250 (September 1, 2000). The pilot program was extended through 
August 31, 2001 in SR-Phlx-2001-20). See Securities Exchange Act 
Release No. 41185 (April 16, 2001), 66 FR 20511 (April 23, 2001). 
The price improvement portion of the pilot program (Supplementary 
Material .07(c)(i) to Phlx Rule 229) has been replaced by a price 
improvement pilot program with an automatic price improvement 
feature based on percentage of the spread between the bid and the 
offer. See Securities Exchange Act Release Nos. 43901 (January 30, 
2001), 66 FR 8988 (February 5, 2001) (SR-Phlx-2001-12) and 44672 
(August 9 2001), 66 FR 43285 (August 17, 2001) (SR-Phlx-2001-12) and 
44672 (August 9, 2001), 66 FR 43285 (August 17, 2001) (SR-Phlx-2001-
67). The Phlx is not seeking to extend the pilot program as to 
Supplementary Material .07(c)(i) to Phlx Rule 229 at this time.
---------------------------------------------------------------------------

    The only substantive change the Phlx proposes at this time is to 
extend the pilot program through November 5, 2001.\7\ The text of the 
proposed rule change is available at the Phlx and at the Commission.
---------------------------------------------------------------------------

    \7\ The Phlx recognizes that all equities currently quote in 
decimals. The Phlx will file a proposed rule change in the future to 
remove references to fractional pricing from this and other Phlx 
rules.
---------------------------------------------------------------------------

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 maybe 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 immediate execution of certain orders 
and mandatory double-up/double-down price protection for equities 
quoting in decimals over PACE.
    The order execution portion of the pilot program is found in 
Supplementary Material .05 to Phlx Rule 229, which establishes that 
market orders up to a specified number of shares will be ``stopped'' at 
the PACE quote at time of entry into the system and delayed up to 30 
seconds to allow for price improvement. However, if the PACE quote at 
time of order entry reflects a point spread (the difference between the 
best bid and offer) of $.05 or less, that order will be executed 
immediately.
    The double-up/double-down price protection portion of the pilot 
program is found in Supplementary Material .07(c)(ii) to Phlx Rule 229, 
which establishes that if a specialist chooses not to provide automatic 
price improvement to all customers and all eligible market orders in an 
equity quoting in decimals, the specialist must provide manual double-
up/double-down price protection in any instance where the bid/ask of 
the PACE quote is $.05 or greater. Double-up/double-down is defined in 
Supplementary Material .07(c)(ii) as a trade that would be at least 
$.10 (up or down) from the last regular way sale on the primary market, 
or, $.10 from the regular way sale that was the previous intra-day 
change on the primary market.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act \8\ in general, and in particular, with 
Section 6(b)(5),\9\ in that it is designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and protect investors and the 
public interest by providing for automatic execution of certain market 
orders and mandatory double-up/double-down price protection for 
equities quoted in decimals.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 \10\ and 
Rule 19b-4(f)(6) thereunder.\11\ 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    The Exchange has requested that the Commission waive the 5-day pre-
filing notice requirement, and accelerate the operative date. 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.\12\
---------------------------------------------------------------------------

    \12\ 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).
---------------------------------------------------------------------------

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-2001-81, and should be 
submitted by October 17, 2001.


[[Page 49242]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-24002 Filed 9-25-01; 8:45 am]
BILLING CODE 8010-01-M