[Federal Register Volume 66, Number 201 (Wednesday, October 17, 2001)]
[Notices]
[Pages 52823-52825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26085]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44921;File No. SR-Phlx-00-70]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment 
Nos. 1 and 2 by the Philadelphia Stock Exchange, Inc. Relating to 
TheStreet.com Internet Index

    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 September 8, 2000, 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 and 
II below, which Items have been prepared by the Phlx. The text of the 
proposal is available for inspection and copying at the places 
specified in Item III below. On September 14, 2001, Phlx filed 
Amendment No. 1 to the proposal.\3\ On October 5, 2001, Phlx filed 
Amendment No. 2 to the proposal.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons and to approve the proposal, as amended, on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Carla Behnfeldt, Director, Legal Department 
New Product Development Group, Phlx, to Marc McKayle, Special 
Counsel, Division of Market Regulation, Commission, dated September 
12, 2001 (``Amendment No. 1''). In Amendment No. 1, the Phlx 
described component additions and subtractions to TheStreet.com 
Internet Index (``Index''), and listed the Index's 23 components and 
share weightings as of September 11, 2001. The Exchange also 
indicated that it intended to increase the number of Index 
components to 25 at the quarterly rebalancing, to become effective 
on October 22, 2001 (``Effective Date''). The Exchange will post an 
information circular on the Exchange website, at least ten days 
prior to the Effective Date, to notify its members of the two new 
component securities.
    \4\ This 19b-4 filing represents Amendment No. 2, which replaces 
the proposal as originally filed, but incorporates Amendment No. 1 
to the filing.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes that the approval of the listing and trading 
of options on the Index be continued upon the removal of a limitation 
that absent Commission approval, the Index be comprised of no less than 
16 component securities and no more than 24 component securities. Under 
the proposal, the Exchange would instead apply the terms of Phlx Rule 
1009A(c)(2) to the Index which specifies that the total number of 
component securities in an index may not increase or decrease by more 
than 33\1/3\% from the number of component securities in the index at 
the time of its initial listing.

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 Phlx included statements 
concerning the purpose of, and the 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 III below. The Phlx 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

Purpose
    On November 17, 1998, the Commission issued a Notice of Filing and 
Immediate Effectiveness for a Phlx proposed rule change relating to 
listing and trading options on the Index.\5\ Options on the Index were 
developed pursuant to Phlx Rule 1009A(b) in accordance with the Generic 
Index Approval Order for the listing and trading of narrow-based index 
options.\6\ The Notice specified that absent Commission approval, the 
Exchange would not change the number of components to more than 24 or 
fewer than 16. The Index initially consisted of 20 component 
securities. The index is currently composed of 23 component 
securities.\7\
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    \5\ See Securities Exchange Act Release No. 40685 (November 17, 
1998), 63 FR 65630 (November 27, 1998) (``Notice'').
    \6\ See Securities Exchange Act Release No. 34157 (June 3, 
1994), 59 FR 30062 (June 9, 1994) (order approving File Nos.SR-Amex-
92-35; SR-CBOE-93-59; SR-NYSE-94-17; SR-PSE-94-07; and SR-Phlx-94-
10) (``Generic Index Approval Order'').
    \7\ See Amendment No. 1, supra note 3.
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    The Exchange proposes to remove the limitation on the number of the 
Index's component securities found in the Notice. Instead, the Phlx 
proposes that the number of the Index's component securities be 
governed by Phlx Rule 1009A(c)(2) which provides in relevant part that, 
for options listed on indices pursuant to Phlx Rule 1009A(b), the total 
number of component securities in the index may not increase or 
decrease by more than 33\1/3\% from the number of component securities 
in the index at the time of its initial listing. Thus,

[[Page 52824]]

under the proposal, in accordance with Phlx Rule 1009A(c)(2), the 
Exchange would not open any additional series for trading if the number 
of the Index's component securities is less than 14 or greater than 26.
    Given the recent growth in the Internet industry and the 
proliferation of qualified potential Index constituents, the Exchange 
believes that the increased flexibility in assigning component stock to 
the Index as permitted by Phlx Rule 1009A(c)(2), as opposed to the 
limitation found in the Notice, is appropriate to ensure that Index 
maintains its intended market character. The Exchange believes that the 
proposal could enhance the Index and facilitate the development and 
implementation of new products based upon the Index. Except for the 
change described herein (and in a separate proposed rule change 
relating to the name and stock selection methodology of the Index and 
the determination of share amounts which is proposed to be implemented 
simultaneously with this proposed rule change),\8\ the attributes of 
the Index and the options on the Index will remain as described in the 
Exchange's original proposed rule change to list options on the Index.
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    \8\ See Securities Exchange Act Release No. 44920 (October 11, 
2001) (Approval order for File No. SR-Phlx-00-75, which, among other 
things, renames the Index ``TheStreet.com Internet Sector Index'').
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    In eliminating the restriction that the Index shall have no fewer 
than 16 and no more than 24 securities without securing Commission 
approval, the Exchange believes that the Index and the options on the 
Index will continue to comply with the maintenance criteria set forth 
in Rule 1009A(c). Specifically, the Index will remain A.M. settled, the 
components of the Index will be reported securities in accordance with 
Rule 11Aa3-1 under the Act,\9\ and the current underlying Index value 
will be reported at least once every fifteen seconds during the time 
the Index options are traded on the Exchange. In addition, 90% of the 
weight of the Index and 80% of the total number of components in the 
Index will satisfy the requirements of Phlx Rule 1009A(c) regarding 
options eligibility. The five highest weighted components will not in 
aggregate account for more than 50% of the weight of the Index pursuant 
to Phlx Rule 1009A(c)(1) and no single security will account for more 
than 25% of the weight of the Index. Pursuant to Phlx Rule 1009A(c)(2), 
the Exchange will not open any additional series for trading if the 
number of components is decreased to below 14 or increased to greater 
than 26. The Exchange will continue to rebalance the Index once every 
calendar quarter.\10\
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    \9\ 17 CFR 240.11Aa3-1.
    \10\ See Securities Exchange Act Release No. 44920, supra note 
8.
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    The Exchange plans to increase the number of components securities 
in the Index as permitted by this proposed rule change during the 
quarterly rebalancing, which takes place following October expiration 
on October 19, 2001. On October 12, 2001, the Exchange will post to 
members an information circular on its website starting that the 
Exchange will be increasing the number of stocks in the Index to 25 
effective Monday morning, October 22, 2001. The information circular, 
among other things, will identify the two new components securities.
2. Statutory Basis
    Phlx believes the proposed rule change is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of Section 
6(b)(5),\12\ in particular, because it is designed to promote just and 
equitable principles of trade, as well as to protect investors and the 
public interest, by permitting the Exchange to continue listing and 
trading options on the Index after making enhancements to the Index 
which should providing investors with an improved means of hedging 
exposure to market risks associated with the securities issued by 
companies in the Internet industry.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. 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 Phlx. All 
submissions should refer to File No. SR-Phlx-00-70 and should be 
submitted by November 7, 2001.

IV. Commission Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful review, 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, 
and in particular, the requirements of section 6(b)(5) of the Act.\13\ 
Specifically, the Commission finds that the Phlx's proposal will 
prevent fraudulent and manipulative acts and practices, promote just 
and equitable principles of trade, and remove impediments to and 
perfect the mechanism of a free and open market, and, in general, 
protect investors and the public interest consistent with section 
6(b)(5) of the Act.\14\ Phlx Rule 1009A(c)(2) is consistent with the 
objectives of the Generic Index Approval Order, which sets forth 
generic listing standards for options on narrow-based indexes, 
including the requirement that the number of component stocks may not 
increase or decrease by a number exceeding 33\1/3\ percent of the 
number of stocks comprising the index at the time of its initial 
listing. In approving the Generic Index Approval Order, the Commission 
found that the generic listing standards for narrow-based index options 
strike a reasonable balance between the Commission's mandates under 
section 6(b)(5) of the Act \15\ to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
while protecting investors and the public interest. Thus, as no new 
regulatory issues are raised by this proposal, the Commission believes 
it is appropriate to remove the component number limitations found in 
the Notice, and permit the Exchange to manage the

[[Page 52825]]

Index with greater flexibility under Phlx Rule 1009A(c)(2).
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    \13\ 15 U.S.C. 78f(b)(5).
    \14\ Id. In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
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    Accordingly, the commission finds good cause, consistent with 
section 6(b)(5) of the Act,\16\ to approve the proposed rule change, 
and Amendment Nos. 1 and 2, on an accelerated basis prior to the 
thirtieth day after the date of publication of notice in the Federal 
Register, pursuant to section 19(b)(2) of the Act.\17\
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    \16\ 15 U.S.C. 78f(b)(5).
    \17\ 15 U.S.C. 78s(b)(5).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-Phlx-00-70), as amended, is 
hereby approved on an accelerated basis.
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    \18\ Id.

    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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-26085 Filed 10-16-01; 8:45 am]
BILLING CODE 8010-01-M