[Federal Register Volume 67, Number 35 (Thursday, February 21, 2002)]
[Notices]
[Pages 8055-8056]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-4171]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45443; File No. SR-Phlx-2001-103]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment Nos. 1 and 2 
Thereto by the Philadelphia Stock Exchange, Inc., to Amend Phlx Rule 
229 to Allow Specialists to Establish a Proprietary Specialized Quote 
Feed Connection to the PACE System

February 14, 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 21, 2001, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the Exchange. On January 16, 2002, the Phlx amended the proposal.\3\ 
The Phlx again amended the proposal on February 12, 2002.\4\ The Phlx 
filed the proposal pursuant to Section 19(b)(3)(A) of the Act \5\ and 
Rule 19b-4(f)(5) \6\ thereunder as a proposal effecting a change in an 
existing order-entry or trading system, rendering the proposal 
effective upon filing with the Commission. 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 15, 2002 letter from Richard S. Rudolph, 
Counsel, Phlx, to Joseph P. Morra, Special Counsel, Division of 
Market Regulation (``Division''), SEC (``Amendment No. 1''). In 
Amendment No. 1, the Phlx clarified the rationale behind offering 
specialists a voluntary alternative interface with the Philadelphia 
Stock Exchange Automated Communication and Execution System (PACE) 
that would allow them to deploy their own pricing models as an 
alternative to the PACE model.
    \4\ See February 11, 2002 letter from Richard S. Rudolph, 
Counsel, Phlx, to Nancy Sanow, Assistant Director, Division, SEC 
(``Amendment No. 2''). In Amendment No. 2, the Phlx deleted the 
phrase ``subject to Exchange approval'' from the proposed rule text, 
and clarified that the requirement of the Floor Procedure Committee 
approval set forth in Phlx Rule 444, Wire Connections Between 
Exchange and Members' Offices, applies to Specialized Quote Feed 
users on the Phlx's Equity Trading Floor. For purposes of 
calculating the 60-day abrogation period, the Commission considers 
the 60-day abrogation period to have commenced on February 12, 2002, 
the date on which the Phlx filed Amendment No. 2.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(5).
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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 229, Philadelphia Stock 
Exchange Automated Communication and Execution System (PACE),\7\ by 
adopting Supplementary Material .22, to provide specialists with the 
ability to establish a special proprietary connection to the PACE 
workstation called a Specialized Quote Feed (``SQF''). The proprietary 
connection, which is voluntary, would provide specialists on the 
Exchange's Equity Floor with an electronic interface that would allow 
specialists to price equity securities with their own quoting models. 
The ability to use the SQF is subject to the Exchange's prior approval. 
The text of the proposed rule change is below. Additions are in 
italics.
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    \7\ PACE is the Exchange's automated order routing, delivery, 
execution and reporting system for the equity trading floor. PACE 
includes a system for the automatic execution of orders on the 
Exchange equity floor under predetermined conditions. Orders 
accepted under the system may be executed on a fully automated or 
manual basis in accordance with the provisions of Exchange Rule 229. 
Securities admitted to dealings on the equity floor are eligible for 
trading on the PACE System in which equity specialists and member 
organizations may choose to participate.
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Rule 229. Philadelphia Stock Exchange Automated Communication and 
Execution System (PACE)

* * * * *
    .22. In addition to the quoting capability in the Exchange's PACE 
workstation, a specialist may establish a special connection to price 
equity securities, which is known as a Specialized Quote Feed.
* * * * *

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 purpose of the proposed rule change is to provide specialists 
on the Exchange's Equity Floor with the ability to interface with PACE 
via a proprietary connection (an SQF) that would enable Exchange equity 
specialists to price equity securities with their own pricing models, 
subject to the Exchange's prior approval. Such approval would be 
required by the Exchange's Floor Procedure Committee, which has 
supervision over all connections or means of communication with the 
equity trading floor.\8\
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    \8\ See Exchange By-Law Article X, Section 10-16.
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    The Exchange believes that the proposed rule change should enable 
Exchange specialists to provide their own stock quotations using their 
own proprietary systems. The Phlx believes that such proprietary 
systems should permit equity specialist units to price securities more 
precisely, and pursuant to their own business models. For instance, 
some specialist units may consider prices of related futures products 
when calculating a bid or offer for a security such as an Exchange 
Traded Fund (``ETF'') product.\9\ The Exchange would continue to make 
available its quotation model on the PACE workstation, which only 
considers the price of the individual security in its quotation 
calculation. The Exchange believes that the SQF would make equity 
quotations disseminated by the Exchange more efficient.
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    \9\ The price of an ETF product is based on a number of factors. 
Although the Exchange offers its specialists a pricing system 
through PACE, specialists may wish to use their own proprietary 
pricing models that include their own calculations concerning the 
variables underlying the pricing of ETFs. For this reason, the Phlx 
has decided to provide specialists, on a voluntary basis, with an 
interface with PACE, or an SQF, that would allow them to deploy 
their own pricing models as an alternative to the PACE model. See 
Amendment No. 1.
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2. Statutory Basis
    The Phlx believes the proposed rule change is consistent with 
Section 6 of the Act \10\ in general, and with Section 6(b)(5) of the 
Act \11\ specifically, in that it is designed to perfect the mechanisms 
of a free and open market and the national market system, protect

[[Page 8056]]

investors and the public interest and promote just and equitable 
principles of trade by providing Exchange equity specialists with an 
electronic interface that will allow them to provide their own 
proprietary quotations.
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    \10\ 15 U.S.C. 78f.
    \11\ 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

    The proposed rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) of the Act,\12\ and Rule 19b-4(f)(5) \13\ 
thereunder, in that it effects a change in an existing order-entry or 
trading system of a self-regulatory organization that does not: (1) 
Significantly affect the protection of investors or the public 
interest, (2) impose any significant burden on competition, or (3) have 
the effect of limiting the access to or availability of the system.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(5).
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    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.

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-2001-103 and 
should be submitted by March 14, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-4171 Filed 2-20-02; 8:45 am]
BILLING CODE 8010-01-P