[Federal Register Volume 67, Number 57 (Monday, March 25, 2002)]
[Notices]
[Pages 13674-13675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7041]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45573; File No. SR-Phlx-2001-33]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the Philadelphia Stock 
Exchange, Inc. Relating to Solicitation of Trading Interest on the 
Exchange Floor

March 15, 2002.

I. Introduction

    On March 8, 2001, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt Phlx Rule 1033(a)(ii) and Options Floor 
Procedure Advice (``OFPA'') F-32 pertaining to the solicitation of 
quotations.\3\ On May 11, 2001, the Exchange filed Amendment No. 1 to 
the proposed rule change with the Commission.\4\ On November 21, 2001, 
the Exchange filed Amendment No. 2 to the proposed rule change with the 
Commission.\5\ The proposed rule change and Amendment Nos. 1 and 2 were 
published in the Federal Register on February 12, 2002.\6\ No comments 
were received regarding the proposal. This order approves the proposed 
rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4
    \3\ The Exchange filed this proposed rule change pursuant to the 
provisions of Section IV.B.j. of the Commission's September 11, 2000 
Order Instituting Public Administrative Proceedings Pursuant to 
Section 19(h)(1) of the Act, which required the Exchange, among 
other things, to adopt new, or amend existing, rules to include any 
practice or procedure whereby market makers trading any particular 
option class determine by agreement the spreads or option prices at 
which they will trade any option class.
    \4\ See Letter from Richard S. Rudolph, Counsel, Phlx, to Nancy 
J. Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated May 10, 2001 (``Amendment No. 
1'').
    \5\ See Letter from Richard S. Rudolph, Counsel, Phlx, to Nancy 
J. Sanow, Assistant Director, Division, Commission, dated November 
21, 2001 (``Amendment No. 2'').
    \6\ See Securities Exhange Act Release No. 45391 (February 4, 
2002), 67 FR 6570.
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II. Description of the Proposal

    The Exchange proposes to adopt Phlx Rule 1033(a)(ii) and OFPA F-32, 
which would permit the members of a trading crowd (including the 
specialist and Registered Options Traders (``ROTs'')) to discuss, 
negotiate, and agree upon the price or prices at which an order of a 
size greater than the AUTO-X guarantee can be executed at that time, or 
the number of contracts that can be executed at a given price or prices 
in response to a floor broker's request for a single bid or offer. The 
proposal would expressly permit a collective response from trading 
crowd members. However, members would not be required to participate in 
a collective response and may voice a bid or offer independently from, 
and differently from, the trading crowd members. In fact, an individual 
ROT with the necessary liquidity, willing to execute a trade at a price 
better than the prevailing market, could bid against the crowd and take 
the entire trade, or part of the trade, pursuant to the Phlx allocation 
rules.\7\
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    \7\ See Phlx Rule 1014. See also File No. SR-Phlx-2001-39 
(proposing to amend Phlx Rule 1014).
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III. Discussion

    After careful consideration the Commission has determined to 
approve the proposed rule change. For the reasons discussed below, the 
Commission finds that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange,\8\ and, in particular, 
with section 6(b)(8) of the Act,\9\ which requires that the rules of an 
exchange do not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \8\ In approving this proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(8).
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    This proposed rule change will clearly establish in the Phlx's 
rules the parameters under which Phlx specialists and ROTs may 
coordinate to respond efficiently to the needs of investors, while 
fulfilling their duty to make fair and orderly markets. In particular, 
the proposed rule change will allow the trading crowd, in response to a 
floor broker's request for a single bid or offer for a large size 
order, to collectively discuss, negotiate and agree upon the price or 
prices at which an order of a size greater than the AUTO-X guarantee

[[Page 13675]]

can be executed at that time, or the number of contracts that can be 
executed at a given price or prices.
    The Commission believes that this proposed rule change recognizes 
the desire of the marketplace to provide a single price to a request to 
fill a large order that a single member might not be able to fill. The 
Commission believes that any anticompetitive effect of this proposal is 
limited by requiring that there be a request for a single price and 
that the order be sufficiently large.\10\ In addition, the Commission 
notes that under the proposed rule change, a single crowd participant 
may voice a bid or offer independently from, and differently from, the 
specialist and other members of a trading crowd in order to execute the 
entire order or part of the order.\11\
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    \10\ The Commission expects the Exchange to monitor the 
collective actions that are undertaken pursuant to the rule change 
approved herein for any undesirable or inappropriate anticompetitive 
effects. The Commission's examination staff will monitor the 
Exchange's efforts in this regard.
    \11\ See supra note 7. See also Phlx Rules 1015(a) and 1082(e).
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    Finally, the Commission finds that the proposed rule change is 
designed to effectively limit the circumstances in which collective 
action is permissible.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Phlx-2001-33) is approved, 
as amended.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Scretary.
[FR Doc. 02-7041 Filed 3-22-02; 8:45 am]
BILLING CODE 8010-01-U