[Federal Register Volume 67, Number 22 (Friday, February 1, 2002)]
[Notices]
[Pages 5027-5029]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-2490]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45343; File No. SR-Phlx-2001-120]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc. to 
Amend Phlx Rule 237, ``The eVWAP Morning Session''

January 28, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on December 26, 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 January 25, 2002, the Phlx amended the proposal.\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 January 24, 2002 letter from Cynthia K. Hoekstra, 
Counsel, Phlx, to Joseph P. Morra, Special Counsel, Division of 
Market Regulation, Commission (``Amendment No. 1''). In Amendment 
No. 1, the Phlx made minor, technical changes to the proposed rule 
language.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rule 237, ``The eVWAP Morning 
Session,'' to: (1) Allow Exchange-Traded Fund Shares \4\ to be executed 
on the eVWAP System (``System'');\5\ (2) codify order increment size 
requirements; and (3) make minor technical amendments to Phlx Rule 237.
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    \4\ Exchange-Traded Fund Shares include exchange listed 
securities representing interests in open-end unit investment trusts 
or open-end management investment companies that hold securities 
based on an index or a portfolio of securities. See Phlx Rule 
1000(b)(42).
    \5\ The System was developed by Universal Trading Technologies 
Corporation, Inc. (``UTTC''). UTTC is a subsidiary of the Ashton 
Technology Group, Inc.
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Background

    The System is a daily, pre-opening order matching session for the 
execution of large-sized stock orders at the volume weighted average 
price (``VWAP''). The matched and executed orders are assigned a VWAP 
after the close of regular trading. The System operates as a facility 
of the Phlx under Section 3(a)(2) of the Act and is governed by Phlx 
Rule 237.\6\
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    \6\ See Securities Exchange Act Release No. 41210 (March 24, 
1999), 64 FR 15857 (April 1, 1999) (SR-Phlx-96-14).
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    Currently, the securities eligible for execution in the System 
pursuant to Phlx Rule 237(b) are exchange listed component issues of 
the Standard & Poor's 500 index and any exchange listed issue that has 
been designated by the compiler of the index for inclusion in such 
index and any of 300 New York Stock Exchange (``NYSE'') issues selected 
according to a prescribed selection process.\7\
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    \7\ The 300 NYSE issues are selected as follows: The top 400 
NYSE issues with the highest market capitalization excluding the 100 
issues that have the lowest average daily dollar trading volume over 
20 days preceding the eligibility determination. Eligibility is 
determined at least semi-annually. See Phlx Rule 237(b).
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    Pursuant to Phlx Rule 237, access to the System is limited to 
``Committers,'' \8\ who enter ``commitments'' and ``Users,''

[[Page 5028]]

who enter ``orders.'' A ``User'' is defined as an Exchange member or 
non-member who enters orders through the System. Users may enter three 
types of orders: (i) Basic; (ii) cross; and (iii) facilitation. A basic 
order is a standard, one-sided order to buy or sell. A basic order may 
be restricted, meaning it is executable against non-members only. A 
cross order is a two-sided order, with both sides comprised of non-
member interest, with instructions to match the identified buy-side 
with the identified sell-side. The two sides making up a cross can be 
entered separately, with the contra-side identified.
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    \8\ ``Committers'' are Exchange members that are: (i) Phlx Floor 
traders (i.e., a Phlx Specialist or Phlx Alternate Specialist in the 
eligible stock that is the subject of the Commitment); or (ii) Phlx 
Off-Floor Liquidity Providers (members that commit to provide 
contra-side liquidity). See Phlx Rule 237(d).
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    A facilitation order is a two-sided order, with an identified Phlx 
member on the contra-side to act as a facilitator for that order (such 
member is known as a ``Guarantor''). The contra-side may be entered 
together with, or separate from, the facilitation order. Facilitation 
orders can be submitted on behalf of Phlx members or non-members. 
Unlike basic orders, facilitation orders may not be restricted. One of 
the three types of facilitation orders that are available to Users is 
an unconditional facilitation order, which is to be executed against an 
identified Guarantor or not at all.\9\ This order is a type of cross 
involving a Phlx member Guarantor.
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    \9\ The other two types of facilitation orders that are 
available to Users are (i) conditional facilitation orders: Execute 
against an identified Guarantor after attempting to be executed 
against non-members to the extent possible; and (ii) last resort 
facilitation: Execute against an identified Guarantor only after 
attempting to execute against all other orders and commitments to 
the extent possible.
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Proposal

    The Exchange proposes to amend Phlx Rule 237 to allow ETFs to be 
eligible for eVWAP trading.\10\ In addition, the Exchange proposes to 
codify two amendments to Phlx Rule 237 allowing: (1) All basic orders 
and commitments to be entered in 100 share increments, with the minimum 
order size remaining at 5,000 shares and the minimum commitment size 
remaining at 2,500 shares; and (2) cross orders, including 
unconditional facilitation orders, to be excepted from the 5,000 
minimum order size requirements and to be executed in 100 share 
increments, with a minimum order size of 100 shares.\11\
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    \10\ The ETF trades executed through eVWAP will be reported 
pursuant to the applicable reporting channel, the Consolidated Tape 
Association. Initially, the Exchange intends to include one ETF, 
which is currently traded on the Exchange's equity floor, to the 
System. Other ETFs may be listed pursuant to unlisted trading 
privileges (``UTP'') even if not traded on the Phlx equity floor 
during regular trading hours.
    \11\ These modifications were approved by the Exchange's Floor 
Procedure Committee on March 22, 2001 (cross orders) and July 17, 
2001 (minimum order and commitment size). These modifications were 
based on market and participant need and did not require prior 
Commission approval. See Securities Exchange Act Release No. 41210 
(March 24, 1999), 64 FR 15857 (April 1, 1999) (SR-Phlx-96-14).
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    Also, the Exchange proposes to make minor technical amendments to 
change the reference to stock to security in order to accurately 
reflect the addition of ETFs and to replace a reference to UTS with 
eVWAP.\12\
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    \12\ Previously, references to UTS were eliminated and replaced 
by eVWAP. However, one reference to UTS was not changed. See 
Securities Exchange Act Release Nos. 42702 (April 19, 2000), 65 FR 
24528 (April 26, 2000) (SR-Phlx-2000-19) and 44230 (April 19, 2001), 
66 FR 21427 (April 30, 2001) (SR-Phlx-2001-10).
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    The text of the proposed rule change is below. Additions are in 
italics; deletions are in brackets.
Rule 237. The eVWAP Morning Session
    (a) No change.
    (b) Eligible Securities. The following securities will be eligible 
for execution in the System:
    (i) Exchange listed component issues of the Standard & Poor's 500 
index and any exchange listed issue that has been designated by the 
compiler of such index for inclusion in such index.
    (ii) Any of 300 New York Stock Exchange (NYSE) issues selected as 
follows: the 400 NYSE issues with the highest market capitalization 
excluding the 100 issues that have the lowest average daily dollar 
trading volume over 20 days preceding the eligibility determination, 
with eligibility determined at least semi-annually.
    (iii) Any Exchange-Traded Fund/Shares that are eligible for trading 
on the Exchange. 
    (c)-(d) No change.
    (e) Order Entry. eVWAP orders will only be accepted during the 
eVWAP Order Entry Time Period from 5:00 a.m. to 9:15 a.m. except the 
Exchange may establish a different period respecting the eVWAP [UTS] 
trading floor terminal. Morning Session orders will only be eligible 
for execution on the day the order is placed and only through the eVWAP 
System. The minimum order size is 5,000 shares except for unconditional 
facilitation and cross orders, for which the minimum order size is 100 
shares. The minimum commitment size is 2,500 shares. All orders and 
commitments must be in 100 [500] share increments including any ``AON'' 
or ``MON'' designations, as defined below. The Exchange may determine 
whether different sizes should be established.
    (e)(i) No change.
    (e)(ii)(c) security [stock] symbol;
    (f)-(j) No change.
    (k) Trading Halts. Nothing in this Rule shall be construed to limit 
the ability for the Exchange to otherwise halt or suspend trading in 
any security [stock] traded through the eVWAP System.
    (l)-(m) No change.
* * * * *

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 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 Phlx proposes to amend Phlx Rule 237 to address needs 
identified to the system operator, namely the addition of ETFs and the 
codification of certain order increment sizes, in order to attract new 
business to eVWAP.
    The Exchange proposes to allow ETFs to be traded on the System. 
ETFs are becoming an alternative product to trading the actual 
securities comprising an index or fund. A number of eVWAP participants 
have requested that the Phlx make ETFs eligible for inclusion in the 
system pursuant to Phlx Rule 237 issue eligibility procedures. The Phlx 
believes that allowing ETFs to be traded through the eVWAP System 
should help to meet the demands of these institutional traders and 
other market participants that desire volume weighted average price-
based transactions on ETFs. Moreover, the Phlx believes that adding 
ETFs to the System should increase eVWAP order flow and provide 
additional trading alternatives to market participants.
    The Phlx proposes to codify two changes to Phlx Rule 237 regarding 
order and commitment size. The Exchange sought to promote additional 
trading through the System by allowing: (1) all basic orders and 
commitments to be entered in 100 share increments, with the minimum 
order size remaining at 5,000 shares and the minimum commitment size 
remaining at 2,500 shares; and (2) cross orders, including 
unconditional facilitation orders, to be

[[Page 5029]]

excepted from the 5,000 minimum order size requirements and to be 
executed in 100 share increments, with a minimum order size of 100 
shares. The Phlx believes these changes in order and commitment size 
should encourage trading through the System by eliminating previously 
imposed order and commitment size restrictions. This aspect of the 
proposal is intended to codify expressly into the rule a previously 
implemented modification.\13\ The Exchange believes that reflecting the 
size into the rule should make it more apparent to potential 
participants that smaller sizes are permissible, thereby potentially 
attracting new business.
    The proposed rule change also makes minor technical amendments to 
Phlx Rule 237 to change the reference from stock to security to more 
accurately reflect the addition of ETFs and to replace a reference to 
UTS with eVWAP.
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    \13\ See footnote 10, supra.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6 of the Act \14\ in general, and in particular, with Section 
6(b)(5),\15\ in that it is designed to promote just and equitable 
principles of trade, and to remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
expanding the number of securities eligible for eVWAP trading and to 
codify order and commitment size requirements to promote trading 
activity.
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    \14\ 15 U.S.C. 78f.
    \15\ 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 would 
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

    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 of 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 
Exhange 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 filings will also be 
available for inspection and copying at the principal office of the 
Phlx. All submissions should refer to File No. SR-Phlx-2001-120 and 
should be submitted by February 22, 2002.

    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. 02-2490 Filed 1-31-02; 8:45 am]
BILLING CODE 8010-01-P