[Federal Register Volume 67, Number 56 (Friday, March 22, 2002)]
[Notices]
[Pages 13398-13399]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6939]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45581; File No. SR-Phlx-2002-05]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc. 
Amending Existing Exchange Rules and Options Advices To Eliminate 
References to Fractional Pricing

March 18, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 14, 2002, 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. The Phlx submitted an amendment to the 
proposed rule change on March 8, 2002.\2\ 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\ The Phlx submitted a new Form 19b-4, which replaces and 
supersedes the original filing in its entirety.
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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 certain Phlx rules and Phlx Options 
Floor Procedure Advices and Order and Decorum Regulations (``Options 
Advices''), to remove references to fractional pricing. The text of the 
proposed rule change is available at the Commission and the Phlx.

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 amend certain 
existing Exchange rules and Options Advices to delete references to 
fractions and dual pricing in fractions and in decimals. Although 
references in Exchange rules to both fractional and decimal pricing 
were necessary during the phase-in period of decimalization since June 
of 2000, such references are no longer needed after full, industry-wide 
implementation of decimal pricing as a result of which all equity and 
option products are now quoted only in decimals.
    In June 2000, the Commission reviewed the Decimals Implementation 
Plan (``Decimals Plan'') \3\ submitted by the National Association of 
Securities Dealers and the national securities exchanges. The Decimals 
Plan proposed a Minimum Price Variation (``MPV'') of $.01 for equities, 
and an MPV of $.05 for options trading under $3.00 and $.10 for options 
trading at $3.00 or higher, which the Exchange implemented in Phlx 
Rules 125 and 1034 (``MPV rules'').\4\ Because decimals pricing was 
instituted in several phases in the years 2000 and 2001, during which 
time securities were quoted in both fractional and decimal prices, the 
Exchange modified its MPV rules and various other rules to include 
references to both fractional and decimal pricing. After the 
implementation of full, industry-wide decimalization such that all 
securities now quote in decimals, references to

[[Page 13399]]

fractions and dual pricing in fractions and in decimals are no longer 
necessary in Phlx rules.
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    \3\ See Securities Exchange Release No. 42914 (June 8, 2000), 65 
FR 38101 (June 19, 2000).
    \4\ See Securities Exchange Act Release No. 43421 (October 6, 
2000), 65 FR 61207 (October 16, 2000). The Exchange has indicated 
that it believes the MPV for equities should be $.05 and not the 
current $.01 MPV. See Phlx Decimal Pricing Impact Study for Equities 
and Options (September 7, 2001) and Phlx comment letter to 
Commission sub-pennies concept release S7-14-01 (November 19, 2001), 
wherein Phlx suggested that the investing public and the markets 
would be best served by mandating a nickel MPV for equity trading. 
For competitive reasons, however, the Exchange intends to continue 
the penny MPV for equities, and the nickel/dime MPV for options. The 
Exchange therefore reaffirms the MPVs currently in its rules: $.01 
for equities (Rule 125), and $.05 for equity and index options and 
Exchange-Traded Fund Shares quoting under $3.00 and $.10 for those 
quoting at $3.00 or higher (Rule 1034).
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    The Exchange therefore proposes to delete references to fractions 
and dual pricing from the following Phlx Rules of the Board of 
Governors: \5\ 125, Variations in Bids and Offers; 229, Philadelphia 
Stock Exchange Automated Communication and Execution System; 245, Terms 
of Offering on Tape; 307 ``Part-Paid'' Securities; and 803 Criteria for 
Listing--Tier I.
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    \5\ The Exchange's Rules of the Board of Governors (numbered 
between 1 and 1000) are applicable to equity trading. By virtue of 
Phlx Rule 1000, they are also applicable to options trading except 
to the extent that specific options rules (numbered 1000 et. seq.) 
govern or unless the context otherwise requires.
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    The Exchange proposes to delete references to fractions and dual 
pricing from the following Phlx options rules: 1014, Obligations and 
Restrictions Applicable to Specialists and Registered Options Traders; 
1015 Quotation Guarantees; 1034 Minimum Trading Increments; 1079 FLEX 
Index and Equity Options; \6\ 1080 Philadelphia Stock Exchange 
Automated Options Market (``AUTOM'') and Automatic Execution System 
(``AUTO-X''); \7\ and 1033A, Meaning of Premium Bids and Offers.
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    \6\ FLEX options are customized index options that trade on the 
Phlx as well as on other exchanges.
    \7\ AUTOM is the Exchange's electronic order routing, delivery, 
execution, and reporting system for equity and index options. AUTO-
X, the automatic execution feature of AUTOM, automatically executes 
eligible public customer market and marketable limit orders in 
equity and index options.
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    The Exchange proposes to delete references to fractions and dual 
pricing from the following Options Advises: A-9, All-or-None Option 
Orders; A-11, Responsibility to Fill Customer Orders; and F-6, Option 
Quote Parameters.\8\
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    \8\ In addition, subsequent to an amendment of the joint 
exchange Intermarket Trading System (``ITS'') Plan to remove 
references to fractional pricing, Phlx intends to modify its Rule 
2001, Intermarket Trading System, to delete such references. Phlx 
and the other ITS participants have substantially similar rules 
implementing the ITS Plan.
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    An example of the non-substantive changes proposed is that the 
language of Exchange Rules 125 and 1034 will be modified to eliminate 
references to fractional increments so that the remaining language will 
refer only to quoting in decimals. A further example is that references 
to fractional pricing in Exchange Rule 1080(c)(i)(C) will be eliminated 
so that the example of a crossed trade in the rule that currently 
reflects fractional pricing (2\1/8\ bid, 2 asked) would reflect only 
decimal pricing (2.10 bid, 2 asked).
    According to the Exchange, the proposed amendments are non-
substantive, technical changes for the purpose of conforming Exchange 
rules to the development of full decimalization in the securities 
industry.\9\
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    \9\ Certain Phlx rules, such as Rule 650, Mandatory 
Participation in Decimalization Testing, and Rule 134, Decimal 
Pricing, expired automatically upon the full, industry-wide 
implementation of decimal pricing, and do not require any rule 
change.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\10\ in general, and with Section 
6(b)(5),\11\ in particular, in that it promotes just and equitable 
principles of trade, fosters cooperation and coordination with persons 
engaged in regulating, clearing, settling, processing information with 
respect to, and facilitating transactions in securities, removes 
impediments to and perfects the mechanism of a free and open market and 
a national market system, and, in general, protects investors and the 
public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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, 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 either solicited or received.

I. 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 Phlx 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, 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-2002-05 and should be submitted by April 12, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-6939 Filed 3-21-02; 8:45 am]
BILLING CODE 8010-01-P