[Federal Register Volume 66, Number 239 (Wednesday, December 12, 2001)]
[Notices]
[Pages 64330-64331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-30654]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45132; File No. SR-Phlx-2001-107]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc., Relating to an 
Extension of the Interim Intermarket Linkage Program

December 5, 2001.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act of 1934''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on November 29, 2001, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') 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 self-regulatory organization. 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.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx, pursuant to Rule 19b-4 under the Act, proposes to extend 
the pilot program authorizing implementation of ``interim linkages'' 
with the other options exchanges.\3\
---------------------------------------------------------------------------

    \3\ On May 16, 2001, the Commission issued a notice of filing 
and immediate effectiveness of a pilot program submitted by the Phlx 
authorizing the implementation of an interim linkage. See Securities 
Exchange Act Release No. 44311, 66 FR 28768 (May 24, 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. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
section 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 is to request an extension 
of an intermarket options linkage on an ``interim'' basis. Currently, 
the Exchange is operating this interim linkage as a pilot program 
pursuant to Phlx Rule 1081. The interim linkage utilizes existing 
market infrastructure to facilitate the sending and receiving of order 
flow between Phlx Specialists, and may later include Registered Options 
Traders, and their counterparts on the other options exchanges as an 
interim step towards development of a ``permanent'' linkage. The 
Exchange now proposes that the interim linkage would remain in effect 
on a pilot basis until April 1, 2002.
    By way of background, the Commission has approved a linkage plan 
that now includes all five options exchanges.\4\ The options exchanges 
continue to work towards implementation of this linkage, including 
contracting with a third party to build a linkage infrastructure. In 
the meantime, the options exchanges have implemented this interim 
linkage.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release Nos. 43086 (July 28, 
2000), 65 FR 48023 (August 4, 2000); 43573 (November 16, 2000), 65 
FR 70850 (November 28, 2000); and 43574 (November 16, 2000), 65 FR 
70851 (November 28, 2000).
---------------------------------------------------------------------------

    The key component of the interim linkage is the participating 
exchanges opening their automated customer execution systems, on a 
limited basis, to market maker orders. Specifically, market makers, 
such as Phlx Specialists, and later Registered Options Traders, are 
able to designate certain orders as ``customer'' orders, and thus, 
receive execution under the automatic execution parameters of 
participating exchanges pursuant to the interim linkage.\5\
---------------------------------------------------------------------------

    \5\ As with other orders that are executed under the automatic 
execution parameters of the Exchange, when a limit order constitutes 
the Exchange's best bid or offer, the specialist executes the 
incoming order against that order.
---------------------------------------------------------------------------

    The interim linkage authorizes the Phlx to implement bilateral or 
multilateral interim arrangements with the other exchanges to provide 
for equal access between market makers on our respective exchanges. 
Currently the interim linkage pilot program allows Phlx Specialists and 
their equivalents on the other exchanges, when they are holding 
customer orders, to send orders reflecting the customer orders to the 
other market for execution when the other market has a better quote. 
Such orders are limited in size to the lesser of the size of the two 
markets' ``firm'' quotes for customer orders. The Exchange expects that 
the interim linkage may expand to include limited access for pure 
principal orders of no more than 10 contracts.
    Under the rules of the pilot program, all interim linkage orders 
must be ``immediate or cancel'' (that is, they cannot be placed on an 
exchange's limit order book), and a market maker can send a linkage 
order only when the other (receiving) market is displaying the best 
national bid or offer and the sending market is displaying an inferior 
price. This allows a Phlx Specialist to access the better price for its 
customer. In addition, if the interim linkage includes principal 
orders, it would allow market makers to attempt to ``clear'' another 
market displaying a superior quote.\6\
---------------------------------------------------------------------------

    \6\ The Commission continues to expect that any exchange 
participating in the interim linkage will implement heightened 
surveillance procedures to help ensure that their respective market 
makers send only properly-qualified orders through the interim 
linkage.
---------------------------------------------------------------------------

    Phlx Specialists' participation in the interim linkage is 
voluntary. Only when a Phlx Specialist and their equivalent on another 
exchange believe that this form

[[Page 64331]]

of mutual access is advantageous will the exchanges employ the interim 
linkage procedures. The Exchange believes that the interim linkage 
benefits investors and provides useful experience to help the exchanges 
in implementing the full linkage. For these reasons, the Exchange 
requests an extension of the pilot program until April 1, 2002.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of section 6(b)(5) under the Act \7\ in that it is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism for a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 received.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days or such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the commission will:
    (A) by order approve such proposed rule change, or,
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change 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-2001-107 and 
should be submitted by January 2, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-30654 Filed 12-11-01; 8:45 am]
BILLING CODE 8010-01-M