[Federal Register Volume 67, Number 63 (Tuesday, April 2, 2002)]
[Notices]
[Pages 15653-15654]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7869]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45651; File No. SR-Phlx-2002-16]


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''

March 26, 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 March 7, 2002, 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 March 21, 2002, the Phlx amended the proposal.\3\ The Phlx 
filed the proposal pursuant to section 19(b)(3)(A) of the Act \4\ and 
Rule 19b-4(f)(5) \5\ thereunder as effecting a change in an existing 
order entry or trading system of the Phlx, which renders 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 March 20, 2002 letter from Murray L. Ross, Vice 
President and Secretary, Phlx to Joseph P. Morra, Special Counsel, 
Division of Market Regulation, SEC and attachments (``Amendment No. 
1''). In Amendment No. 1, the Phlx made minor, technical changes to 
the proposed rule language. The Commission considers the 60-day 
abrogation period to have begun on March 21, 2002, the date the Phlx 
filed Amendment No. 1.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 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 Exchange proposes to amend Phlx Rule 237, ``The eVWAP Morning 
Session,'' to expand the securities eligible for eVWAP trading to 
include additional component issues of the Standard and Poor's 
(``S&P'') 500 index, as well as the NASDAQ 100 Index. The text of the 
proposed rule change is below. Additions are in italics; deletions are 
in brackets.
    (b) Eligible Securities. The following securities will be eligible 
for execution in the System:
    (i) [Exchange listed] Any component issues of the Standard & Poor's 
500 index and/or NASDAQ 100 Index and any [Exchange listed] issue that 
has been designated by the compiler of such index for inclusion in such 
index.
    (ii) No change.
    (iii) 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 expand the number of highly capitalized and 
actively traded securities eligible to participate in eVWAP trading 
pursuant to Phlx Rule 237. The eVWAP is a pre-opening order matching 
session for the electronic execution of large-sized stock orders at a 
standardized volume weighted average price (``eVWAP Price'').
    The proposed expansion of eligible securities would expand the 
eligible issues to include those traded on the NASDAQ National Market 
that are reported to the NASDAQ Trade Dissemination Service (``NTDS'') 
and are component issues of the S&P 500 index, and the NASDAQ 100 
Index. This expansion would increase the number of securities available 
for eVWAP participation by 100 over the counter NASDAQ National Market 
Securities that are not presently eVWAP eligible. There are 78 
securities that are component issues of the S&P 500 index, 43 that are 
only NASDAQ 100 Index component issues. A number of eVWAP participants 
have requested that the Phlx make these issues eligible for inclusion 
in the system pursuant to Phlx Rule 237 issue eligibility procedures.
    The Exchange notes that the additional eligible securities may not 
be securities that the Exchange otherwise trades on its equity floor. 
It should be noted that Phlx has recently reinstated its over the 
counter unlisted trading privileges (``OTC/UTP'') pilot program for 
NASDAQ National Market Securities.\6\ These securities may instead only 
be traded through the eVWAP System; thus, they would be traded on an 
unlisted trading privileges (``UTP'') basis, but without trading during 
regular trading hours pursuant to regular trading rules and thus 
without the concomitant quoting obligations. Nevertheless, these eVWAP 
trades will be reported pursuant to the applicable reporting channel, 
in the case of NASDAQ National Market Securities the NTDS through the 
Exchange's communication linkage system supplied by TradinGear.
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    \6\ See Securities Exchange Act Release No. 45182 (December 20, 
2001), 66 FR 67609 (December 31, 2001)(SR-Phlx-2000-20).
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    The Exchange notes that the additional securities that it has 
requested to be eligible for eVWAP matching are all high capitalization 
issues, enjoying active trading volume. The S&P 500 index is a key 
benchmark of large capitalization securities followed actively by 
institutional money managers and investment fiduciaries who seek to 
trade component issues relative to their index weightings. Certain of 
these market participants, among others, have indicated that they see 
considerable utility in extending the benefits now afforded to a 
limited group of listed issues to a more expansive eVWAP eligibility 
list, including all

[[Page 15654]]

component issues of the S&P 500 index and the NASDAQ 100 Index. 
Additionally, the eligibility of these additional issues is critical to 
developing eVWAP order flow connected with certain index-linked stock 
basket transactions.
    The Exchange notes that several major broker-dealers sponsor 
alternative trading systems, which currently provide crossing networks 
that offer the opportunity to trade any listed or Nasdaq reported 
securities. For example, ITG (POSIT) and Instinet operate crossing 
systems that offer trade matching in thousands of reported securities 
without regard to capitalization or dollar volume. As a competitive 
matter, the Phlx believes that eVWAP needs to offer, at a minimum, the 
component NASDAQ National Market Securities of the S&P 500 index, as 
well as those of the NASDAQ 100 Index. The NASDAQ National Market 
Securities are actively traded and among the largest capitalization 
securities available in that market.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) of the Act \7\ in general, and in particular, with Section 
6(b)(5),\8\ in that it is designed to promote just and equitable 
principles of trade, prevent fraudulent and manipulative acts and 
practices and protect investors and the public interest by expanding 
the number of highly capitalized, actively traded securities eligible 
for eVWAP trading.
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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 either solicited or received.

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

    The proposed rule change has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act \9\ and subparagraph (f)(5) of Rule 19b-4 
thereunder,\10\ because it effects a change in an existing order entry 
or trading system of the Phlx. 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)(ii).
    \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 
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-2002-16 and 
should be submitted by April 23, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-7869 Filed 4-1-02; 8:45 am]
BILLING CODE 8010-01-P