[Federal Register Volume 67, Number 64 (Wednesday, April 3, 2002)]
[Notices]
[Pages 15849-15851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8042]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45667; File No. SR-Phlx-2002-20]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the Philadelphia Stock Exchange, 
Inc. Relating to an Extension of the Interim Intermarket Linkage 
Program

March 28, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 25, 2002, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items

[[Page 15850]]

have been prepared by the Phlx. Phlx submitted Amendment No. 1 to the 
proposed rule change on March 27, 2002.\3\ The Exchange filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act,\4\ and 
Rule 19b-4(f)(6) thereunder,\5\ which renders the proposal effective 
upon filing with the Commission. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange made a technical correction 
to its rule text. See letter from John Dayton, Assistant Secretary 
and Counsel, Phlx, to Nancy Sanow, Assistant Director, Division of 
Market Regulation, Commission, dated March 26, 2002 (``Amendment No. 
1'').
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6). The Phlx requested that the 
Commission waive the rule's requirements of a 30-day operative delay 
and a five-day pre-filing notice.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to extend until January 31, 2003 the pilot 
program authorizing implementation of ``interim linkages'' with the 
other options exchanges.

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 request an extension 
of an intermarket options linkage on an ``interim'' basis. Currently, 
the Exchange is operating this interim linkage as a pilot program 
pursuant to Phlx Rule 1081.\6\ The interim linkage utilizes existing 
market infrastructure to facilitate the sending and receiving of order 
flow between Phlx Specialists, and may later include Registered Options 
Traders and their counterparts on the other options exchanges as an 
interim step towards development of a ``permanent'' linkage. The 
Exchange now proposes that the interim linkage would remain in effect 
on a pilot basis until January 31, 2003.
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    \6\ See Securities Exchange Act Release Nos. 44311 (May 16, 
2001), 66 FR 28768 (May 24, 2001) (immediate effectiveness of 
interim linkage as a pilot program until January 31, 2002); and 
45288 (January 16, 2002), 67 FR 3525 (January 24, 2002) (approval of 
an extension of interim linkage pilot until April 1, 2002).
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    By way of background, the Commission has approved a linkage plan 
that now includes all five options exchanges.\7\ The options exchanges 
continue to work towards implementation of this linkage, which include 
contracting with a third party to build a linkage infrastructure. In 
the meantime, the options exchanges have implemented this interim 
linkage.
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    \7\ See Securities Exchange Act Release Nos. 43086 (July 28, 
2000), 65 FR 48023 (August 4, 2000); 43573 (November 16, 2000), 65 
FR 70850 (November 28, 2000); and 43574 (November 16, 2000), 65 FR 
70851 (November 28, 2000). The Exchange intends and believes that 
the other options exchange intend to file an amendment to the 
``permanent'' linkage plan setting, among other things, the final 
implementation date for ``permanent'' linkage to be no later than 
April 30, 2003.
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    The key component of the interim linkage is the participating 
exchanges opening their automated customer execution systems, on a 
limited basis, to market maker orders. Specifically, market makers, 
such as Phlx Specialists, and later Registered Options Traders, are 
able to designate certain orders as ``customer'' orders, and thus 
receive execution under the automatic execution parameters of 
participating exchanges pursuant to the interim linkage.\8\
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    \8\ As with other orders that are executed under the automatic 
execution parameters of the Exchange, when a limit order constitutes 
the Exchange's best bid or offer, the specialist executes the 
incoming order against that order.
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    The interim linkage authorizes the Phlx to implement bilateral or 
multilateral interim arrangements with the other exchanges to provide 
for equal access between market makers on our respective exchanges. 
Currently the interim linkage pilot program allows Phlx Specialists and 
their equivalents on the other exchanges, when they are holding 
customer orders, to send orders reflecting the customer orders to the 
other market for execution when the other market has a better quote. 
Such orders are limited in size to the lesser of the size of the two 
markets' ``firm'' quotes for customer orders. The Exchange expects that 
the interim linkage may expand to include limited access for pure 
principal orders of no more than 10 contracts.
    All interim linkage orders must be ``immediate or cancel'' (that 
is, they cannot be placed on an exchange's limit order book), and a 
market maker can send a linkage order only when the other (receiving) 
market is displaying the best national bid or offer and the sending 
market is displaying an inferior price. This allows a Phlx Specialist 
to access the better price for its customer. In addition, if the 
interim linkage includes principal orders, it would allow market makers 
to attempt to ``clear'' another market displaying a superior quote.
    Phlx Specialists' participation in the interim linkage is 
voluntary. Only when a Phlx Specialist and its equivalent on another 
exchange believe that this form of mutual access is advantageous will 
the exchanges employ the interim linkage procedures. The Exchange 
believes that the interim linkage benefits investors and provides 
useful experience to help the exchanges in implementing the full 
linkage. For these reasons, the Exchange requests an extension of the 
pilot program until January 31, 2003.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\9\ in general, and furthers the objectives of 
Section 6(b)(5),\10\ in particular, because it should prevent 
fraudulent and manipulative acts and practices, promote just and 
equitable principles of trade, foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, remove impediments to and perfect the mechanism for a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 received.

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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30

[[Page 15851]]

days from the date on which it was filed, or such shorter time as the 
Commission may designate, if consistent with the protection of 
investors and the public interest; provided that the self-regulatory 
organization has provided the Commission with written notice of its 
intent to file the proposed rule change, along with a brief description 
and text of the proposed rule change, at least five days prior to the 
date of filing of the proposed rule change, or such shorter time as 
designated by the Commission, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6)\12\ thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6)\13\ does not 
become operative prior to 30 days after the date of filing or such 
shorter time as the Commission may designated if such action is 
consistent with the protection of investors and the public interest. 
The Phlx has requested, in order to allow the Exchange to continue to 
participate in the interim options linkage, that the Commission 
accelerate the implementation of the proposed rule change so that it 
may take effect prior to the 30 days specified in Rule 19b-
4(f)(6)(iii).\14\ The Exchange believes that this request for an 
extension of Phlx Rule 1081 is substantially similar to the proposed 
rule changes filed by the other options exchanges and approved by the 
Commission.\15\ Further, this extension should allow the Exchange to 
participate in the interim linkage until the ``permanent'' linkage is 
closer to being operational. The Commission finds that the proposed 
rule change is consistent with the protection of investors and the 
public interest and, therefore, has determined to make the proposed 
rule change operative as of the date of this notice.\16\
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    \13\ Id.
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ See Securities Exchange Act Release Nos. 45373 (January 31, 
2002), 67 FR 5860 (February 7, 2002) (approval of extension of 
interim linkage program on the American Stock Exchange LLC until 
December 31, 2002); 45336 (January 25, 2002), 67 FR 5137 (February 
4, 2002) (approval of extension of interim linkage program on the 
Chicago Board Options Exchange, Inc. until the earlier of January 
31, 2003 or the complete implementation of ``permanent'' linkage); 
45337 (January 25, 2002), 67 FR 5018 (February 1, 2002) (approval of 
extension of interim linkage program on the International Securities 
Exchange LLC until the earlier of January 31, 2003 or the complete 
implementation of ``permanent'' linkage); and 45374 (January 31, 
2002), 67 FR 5869 (February 7, 2002) (approval of extension of 
interim linkage program on the Pacific Exchange, Inc. until the 
earlier of January 31, 2003 or the complete implementation of 
``permanent'' linkage).
    \16\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    A proposed rule change filed under Rule 19b-4(f)(6)\17\ normally 
requires that a self-regulatory organization give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change. However, Rule 19b-4(6)(iii)\18\ permits the Commission to 
designate a shorter time. The Phlx seeks to have the five-business-day 
pre-filing requirement waived with respect to the proposed rule change. 
The Commission has determined to waive the five-business-day pre-filing 
requirement.
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
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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, 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-2002-20 and should be submitted by April 24, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-8042 Filed 4-2-02; 8:45 am]
BILLING CODE 8010-01-P