[Federal Register Volume 67, Number 28 (Monday, February 11, 2002)]
[Notices]
[Pages 6312-6313]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3234]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45390; File No. SR-Phlx-2001-108]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to an Increase of the Minimum Size of PACE 
Orders That Must Be Automatically Guaranteed by Equity Specialists

February 4, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 196-4 thereunder,\2\ notice is hereby given that 
on December 5, 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 Phlx. On January 
31, 2002, the Phlx amended its 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\ Letter from Edith Hallahan, Deputy General Counsel, Phlx to 
Lisa N. Jones, Attorney, Division of Market Regulation, Commission 
dated January 31, 2002 (``Amendment No. 1''). Amendment No. 1 
provides a corrected version of the Exchange's rule text.
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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 its rules to restore the minimum 
automatic execution size of PACE \4\ orders for equity specialists from 
299 shares to 599 shares. The text of the proposed rule change is 
available at the Office of the Secretary, the Phlx, and the Commission.
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    \4\ The Philadelphia Stock Exchange's Automatic Communication 
and Execution System (PACE) performs order routing, delivery, 
execution and reporting system for its equity trading floor. See 
Phlx Rule 229.
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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. 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 is to restore the equity 
specialists' minimum automatic execution size for PACE orders to 599 
shares. In a recent proposed rule change, the Exchange amended Phlx 
Rule 229 to reduce the minimum automatic execution size of PACE orders 
from 599 shares to 299 shares.\5\ The Exchange never implemented that 
reduction.\6\
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    \5\ See Securities Exchange Act Release No. 44395 (June 6, 
2001), 66 FR 31728 (June 12, 2001) (SR-Phlx-2001-46) (``June 2001 
rule change'').
    \6\ The Exchange states that following effectiveness of the 
filing, the Exchange determined not to reduce the minimum auto 
execution size for various reasons, including changed market 
conditions and differing views on whether the reduction was 
appropriate.
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    According to the Exchange, the June 2001 rule change addressed a 
concern commonly raised by liquidity providers in a post-decimal 
trading environment that the transition to trading in decimal 
increments, rather than in fractions, has resulted in a wider range of 
quoted prices (more ticks), as well as an increase in small-sized bids 
and offers made at a particular price. The Exchange also represented in 
the June 2001 rule change that such bids and offers, which can be for 
as little as 100 shares qualify, regardless of their size, to become 
the National Best Bid or Offer (``NBBO''), also know for PACE purposes 
as the ``PACE Quote.''
    At this time, the Exchange proposes to restore the rule language 
providing for a minimum automatic execution size of 599 shares in order 
to preserve the current levels of automatic execution on the Exchange's 
equity floor. It is the Exchange's belief that the present market 
environment and focus on speed of execution require that automatic 
execution levels remain at least at 599 shares.
    The Exchange believes that returning to a 599 share minimum 
automatic execution level, should result in more orders eligible for 
automatic execution. Because the 599 shares level is a minimum, 
specialists may set their automatic execution levels higher than 599 
shares. Where the specialist has set an automatic execution level that 
is higher, such as 1,099 shares, orders greater than that automatic 
execution level are handled manually by the specialist (although they 
can be delivered electronically to the specialist by PACE). Obviously, 
orders less than 1,099 shares, in this example, would be eligible for 
automatic execution. Similarly, where the specialist has set an 
automatic execution level of the minimum 599 shares, orders for 599 
shares or less are eligible for automatic execution and orders for more 
than 599 shares are handled manually by the specialist. In short, the 
proposal re-establishes 500 shares as the minimum automatic execution 
level on PACE.
2. Statutory Basis
    The Exchange believes that this proposal is consistent with section 
6(b) of the Act in general,\7\ and furthers the objectives of section 
6(b)(5) in particular,\8\ in that it should promote just and equitable 
principles of trade, by fostering competitive and orderly markets.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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.

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

    Because the Phlx has designated the foregoing proposed rule change 
as a rule effecting a change in an existing order-entry or trading 
system of the Exchange that (1) does not significantly affect the

[[Page 6313]]

protection of investors or the public interest; (2) does not impose any 
significant burden on competition; and (3) does not have the effect of 
limiting access to or availability of the system, it has become 
effective upon filing pursuant to section 19(b)(3)(A) of the Act,\9\ 
and Rule 19b-4(f)(5) thereunder.\10\ 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.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(5).
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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 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-2001-108 and 
should be submitted by March 4, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-2(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-3234 Filed 2-8-02; 8:45 am]
BILLING CODE 8010-01-M