[Federal Register Volume 66, Number 231 (Friday, November 30, 2001)]
[Notices]
[Pages 59832-59834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-29717]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45086; File No. SR-Phlx-2001-96]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Philadelphia Stock Exchange, Inc. Relating to the Exchange's 
Options Maintenance Standards

November 19, 2001.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 59833]]

(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on October 18, 2001, the Philadelphia Stock Exchange, Inc. 
(``Exchange'' or ``Phlx'') 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 Phlx. On November 19, 2001, the Phlx submitted Amendment No. 1 
to the proposed rule change.\3\ The Commission is publishing this 
notice to solicit comments on the proposed rule 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 letter from John Dayton, Assistant Secretary & Counsel, 
Phlx, to Nancy Sanow, Assistant Director, Division of Market 
Regulation (``Division''), Commission, dated November 16, 2001 
(``Amendment No. 1''). In Amendment No. 1, the Phlx clarified in 
Commentary .01, subparagraph 4, and Commentary .02 to Phlx Rule 1010 
that it will look to the primary market in which the underlying 
security trades in determining whether the underlying security 
satisfies the price requirements for adding additional series of 
options contracts. The Phlx also requested approval for the instant 
proposed rule change to be reclassified as filed under section 
19(b)(3)(A), 15 U.S.C. 78s(b)(3)(A), and Rule 19b-4(f)(6) 
thereunder, 17 CFR 240.19b-4(f)(6). Lastly, the Phlx requested the 
original proposal on October 18, 2001, be considered the pre-filing 
notice required pursuant to Rule 19b-4(f)(6), 17 CFR 240.19b-
4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to amend Phlx Rule 1010, which governs the 
delisting of options classes on underlying equity securities 
(``Delisting Criteria Rule'' or ``Phlx Rule 1010'').
    The text of the proposed rule change, as amended, is available at 
the Phlx and the Commission.

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 basis for the proposed rule change, as 
amended, 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 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

1. Purpose
    The purpose of the proposed rule change, as amended, is to amend 
the Delisting Criteria Rule. The Exchange's Delisting Criteria Rule 
currently provides that the Exchange may not list additional series on 
an option class if the underlying security has not closed above $5 for 
the majority of business days during the preceding six calendar months 
as measured by the highest closing price reported in any market in 
which the underlying security traded (``$5 guideline'').\4\ The 
Delisting Criteria Rule provides limited exceptions to the $5 guideline 
such that series may be added even when the underlying security did not 
satisfy the $5 guideline if the underlying security met either a 
separate $3 guideline or a separate $4 guideline.
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    \4\ Other factors also must be met for the Exchange to add 
additional series in a class as described in Commentary .01 to Phlx 
Rule 1010.
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    Change in Guideline Price. The Exchange is proposing to amend its 
Delisting Criteria Rule in a few respects. First, the Exchange is 
amending the Delisting Criteria Rule by changing the guideline price 
(set for in Commentary .01 to Phlx Rule 1010) used to determine whether 
an underlying security previously approved for Exchange options 
transactions no longer meets the requirements for the continuance of 
approval. The Exchange proposes to reduce the guideline price used to 
make this determination from $5 to $3 in the primary market.\5\ In 
addition, the Exchange proposes to eliminate the requirement for the 
Exchange to determine the guideline price by looking at whether the 
security closed above that price for a majority of the business days 
during the preceding six calendar months. Instead, the Exchange 
proposes to determine whether the underlying security closed above that 
price in the primary market in which it is traded (i.e., no proposed to 
be $3) on the previous trading day. The Exchange is not otherwise 
proposing to amend the other criteria used to determine whether a class 
of options meets the requirements for the continuance of approval (such 
as, the number of shares that must be held by non-insiders, number of 
holders, and trading volume).
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    \5\ If the underlying security does not meet the guideline 
price, the Exchange will not open additional series of options of 
that class and may take other actions, such as prohibiting opening 
purchase transactions in series of options of that class previously 
opened.
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    Intra-Day Additions of Series. The Exchange proposes to amend 
Commentary .02 to Phlx Rule 1010 by reducing from $5 to $3 the price 
above which the underlying security must be traded in the primary 
market before the Exchange may add additional series of options intra-
day. This means if the Exchange is adding a series intra-day, the 
underlying security must have closed above $3 the previous day in the 
primary market (in order to meet the requirement of Commentary .01(4) 
to Phlx Rule 1010) and must be at $3 or above the primary market at the 
time the new series is added (in order to meet the requirement of 
Commentary .02 to Phlx Rule 1010).
    Elimination of Commentary .05 to Phlx Rule 1010. The Exchange also 
is proposing to eliminate Commentary .05 of the Delisting Criteria 
Rule. Commentary .05 to Phlx Rule 1010 sets forth guidelines for adding 
classes notwithstanding that the price of the underlying security does 
not meet the $5 guideline currently set forth in Commentary .01, to 
Phlx Rule 1010. Notwithstanding the $5 guideline, Commentary .01 to 
Phlx Rule 1010 currently provides that the Exchange may add series if: 
(1) the closing price of the underlying security was over $3 for a 
majority of the days during the six calendar month period preceding the 
addition, and (2) the closing price of the underlying security must be 
$4 for a majority of the days during a subsequent six calendar month 
period. Because the Exchange is proposing to change the initial 
guideline from $5 to $3, Commentary .05 to Phlx Rule 1010 is no longer 
needed.
    Reasons for Change to Delisting Criteria. The Phlx represents that 
when many of the delisting criteria were first implemented, the listed 
options market was in its infancy. Now more than twenty-five yeas after 
the Phlx first started trading listed options, the Phlx asserts that 
the listed options market is a mature market with sophisticated 
investors. The Exchange does not believe that the $5 guideline is 
necessary to accomplish its presumed intended purpose; i.e., to prevent 
the proliferation of option classes on underlying securities that lack 
liquidity needed to maintain fair and orderly markets.\6\ The Exchange 
believes that it should allow the desires of the Exchange's customers 
and the workings of the marketplace to determine the

[[Page 59834]]

securities on which the Exchange will list options.\7\ The Exchange 
believes its own business considerations should ensure that the 
Exchange does not list inappropriate classes of options. In determining 
to list any number of new option series under the proposed less 
restrictive standard, the Exchange represents that it must ensure that 
its own systems and those of Options Price Reporting Authority can 
handle any increased capacity requirements.
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    \6\ See Securities Exchange Act Release No. 33257 (November 30, 
1993), 58 FR 64416 (December 7, 1993).
    \7\ Of course, the rule still provides that the security 
underlying the option must be listed on a national securities 
exchange or Nasdaq.
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    The Exchange represents that another reason for the proposal is 
that the current rule can be subject to differing interpretations. The 
Exchange notes that the options exchanges believe differing 
interpretations have occurred. The Exchange believes that the proposal 
is more clear because it reduces the standards to only one price 
guideline and checks that guideline the previous day or intra-day, 
instead of over the previous six months.
2. Statutory Basis
    The Exchange believes that the current proposal should allow the 
Exchange to provide investors with those options that are most useful 
and demanded by them without sacrificing investor protection. As such, 
the Exchange believes the proposed rule change, as amended, is 
consistent with section 6 of the Act,\8\ in general, and with section 
6(b)(5) of the Act,\9\ in particular, because it should promote just 
and equitable principles of trade, facilitate transactions in 
securities, remove impediments to and perfect the mechanism of a free 
and open market and a national market system, and to protect investors 
and the public interest.
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    \8\ 15 U.S.C. 78f.
    \9\ 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, as 
amended, 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.

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

    Because the foregoing proposed rule change, as amended: (1) Does 
not significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days after the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest; provided that the 
self-regulatory organization has given the Commission written notice of 
its intent to file the proposed rule change, along with the brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change,\10\ or such shorter time as designated by the Commission, the 
proposed rule change, as amended, has become effective pursuant to 
section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) \12\ 
thereunder.
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    \10\ See supra note 3.
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Phlx seeks to have the proposed 
rule change, as amended, become operative immediately. The Commission, 
consistent with the protection of investors and the public interest, 
has determined to make the proposed rule change, as amended, operative 
as of November 20, 2001.\13\ The Commission notes that the proposed 
rule change, as amended, is substantially similar in all material 
respects to the rule of another exchange that the Commission has 
already noticed for public comment and approved \14\ and, therefore, 
the proposed rule change raises no new issues of regulatory concern.
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    \13\ 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).
    \14\ See Securities Exchange Act Release No. 44964 (October 19, 
2001), 66 FR 54559 (October 29, 2001) (order approving File No. SR-
CBOE-2001-29).
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    At any time within 60 days of the filing of the proposed rule 
change, as amended, 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.\15\
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    \15\ See section 19(b)(3)(C) of the Act, 15 U.S.C. 78(b)(3)(C).
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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 proposed rule 
change, as amended, 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-2001-96 and should be submitted by December 21, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-29717 Filed 11-29-01; 8:45 am]
BILLING CODE 8010-01-M