[Federal Register Volume 67, Number 143 (Thursday, July 25, 2002)]
[Notices]
[Pages 48693-48694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18840]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46214; File No. SR-Phlx-2001-63]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Amendment Nos. 1 and 2 Thereto 
and Notice of Filing of and Order Granting Accelerated Approval to 
Amendment No. 3 Relating to New Product Allocations

July 16, 2002.

I. Introduction

    On June 18, 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 relating to new product allocations. On February 
28, 2002, the Phlx submitted Amendment No. 1 to the proposed rule 
change.\3\ On April 5, 2002, the Phlx submitted Amendment No. 2 to the 
proposed rule change.\4\ On May 2, 2002, notice of the proposed rule 
change and Amendment Nos. 1 and 2 thereto was published in the Federal 
Register.\5\ The Commission received no comments on the proposed rule 
change, as amended by Amendment Nos. 1 and 2. On June 25, 2002, the 
Phlx filed Amendment No. 3 to the proposed rule change with the 
Commission.\6\ This order approves the proposed rule change, as 
amended, and grants accelerated approval to Amendment No. 3. The 
Commission is also soliciting comments on Amendment No. 3 from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Linda C. Christie, Counsel, Phlx, to Nancy 
J. Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated February 26, 2002 (``Amendment No. 
1'').
    \4\ See letter from Linda C. Christie, Counsel, Phlx, to Nancy 
J. Sanow, Assistant Director, Division, Commission, dated April 4, 
2002 (``Amendment No. 2'').
    \5\ See Securities Exchange Act Release No. 45824 (April 25, 
2002), 67 FR 22144.
    \6\ See letter from Linda S. Christie, Counsel, Phlx, to Kelly 
McCormick-Riley, Senior Special Council, Division, Commission, dated 
June 25, 2002 (``Amendment No. 3''). In Amendment No. 3, the Phlx 
clarified that the three types of business transactions enumerated 
in proposed Phlx Rule 511(b)(ii) are not the type of business 
transactions contemplated under Phlx Rule 1023. The Phlx explained 
that for purposes of its proposed Rule 511(b)(ii), its Rule 1023 
shall be deemed to prohibit only business transactions which are 
material in value either to the issuer or the specialist, would 
provide access to material non-public information relating to the 
issuer, or would provide access to material non-public information 
relating to the issuer, or would give rise to a control relationship 
between the issuer and the specialist unit. The receipt of routine 
business services, goods, materials, insurance, on terms that would 
be generally available shall not be deemed a business transaction 
for the purposes of Phlx Rule 1023. The Phlx further elaborated that 
license agreements, trademarks, tradenames and intellectual property 
are routine business services that are generally available through 
an issuer and that these types of transactions do not give rise to 
the possibility of the specialist unit being controlled an issuer. 
The Phlx also represented that the transactions contemplated in 
proposed Phlx Rule 511(b)(ii) do not provide access to non-public 
information relating to the issuer. Rather, these types of business 
agreements between the parties are routine in nature and are not 
deemed prohibited transactions per Phlx Rule 1023.
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II. Description of Proposal

    The Phlx proposes to amend Phlx Rule 511(b), Allocations, to permit 
the Equity Allocation, Evaluation and Securities Committee and the 
Options Allocation, Evaluation and Securities Committee (collectively 
``Committees'') to allocate a new product \7\ to an eligible

[[Page 48694]]

specialist unit that develops such new product or is instrumental in 
developing or bringing such new product to the Exchange without 
soliciting applications from any other specialist units. Currently, 
Phlx Rule 506(a) requires, among other things, that the Committees 
solicit applications from all eligible specialist units when allocating 
an equity or options book. Specialists will continue to be required to 
satisfy all eligibility requirements.\8\
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    \7\ Phlx proposes to define a new product for purposes of Phlx 
Rule 511(b)(i) as anything other than common stock of an operating 
company, or options or futures on common stock of an operating 
company or straight debt of an operating company.
    \8\ See, e.g., Phlx Rules 501, 506, and 511.
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    The proposal would also permit the Committees, as a condition to 
allocating a book for any equity, option, or futures product that 
involves the licensing or other acquisition of an index, trademark, 
tradename, patent or other intellectual property, to: (1) Require a 
specialist unit to indemnify the Exchange and/or any third party 
against any potential liabilities associated with the product; (2) 
require a specialist unit to agree to pay the Exchange and/or any third 
party any amounts related to the product or use of the product; and (3) 
enter into any necessary agreements or undertakings with the Exchange 
and/or third party concerning the intellectual property, however, no 
such agreement or undertaking may confer any ownership or proprietary 
rights upon the specialist unit with respect to the intellectual 
property or the book.

III. Discussion

    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. Specifically, 
the Commission finds that the proposal is consistent with the 
requirements of sections 6(b)(4) and (5) of the Act \9\ that the rules 
of an exchange, among other things, provide for the equitable 
allocation of reasonable fees, dues, and other charges among its 
members and issuers and other persons using its facilities, and be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.\10\
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    \9\ 15 U.S.C. 78f(b)(4) and (5).
    \10\ In approving the proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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    The Commission believes that the proposal to permit the Committees 
to allocate a new product to an eligible specialist unit that develops 
a new product or is instrumental in developing or bringing a new 
product to the Exchange without soliciting new applications from other 
specialist units will permit the Exchange to fulfill its obligation to 
protect investors and the public interest because specialist units will 
continue to be required to satisfy the existing specialist appointment 
criteria set forth in Phlx Rule 501. The proposal provides the 
Committees with the ability to consider a specialist's willingness to 
expend capital and other resources in developing and bringing new 
products to the Phlx. Further, the Commission notes that the Committees 
are not required to view the fact that an eligible specialist unit 
develops a new product or is instrumental in developing or bringing a 
new product to the Exchange as a conclusive factor in its allocation 
determination. The proposal merely provides the Committees with the 
discretion to consider such additional factors.
    The Commission also believes that the proposal to permit the 
Committees to require certain indemnifications and agreements regarding 
payment and intellectual property is reasonable and should provide for 
the equitable allocation of charges incurred by the Exchange associated 
with the trading of new products. Further, the Commission believes that 
passing on these related costs should assist the Phlx in defraying some 
of the costs and may provide for a more effective utilization of 
Exchange resources.
    The Commission also finds good cause for accelerating approval of 
Amendment No. 3 because it merely clarifies that the three types of 
business transactions enumerated in proposed Phlx Rule 511(b)(ii) are 
not business transactions contemplated under Phlx Rule 1023. 
Accordingly, the Commission finds that good cause exists, consistent 
with sections 6(b)(5) of the Act,\11\ and section 19(b)(2) of the Act 
\12\ to accelerate approval of Amendment No. 3 to the proposed rule 
change prior to the thirtieth day after publication in the Federal 
Register.
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    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 3, including whether Amendment No. 3 
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-2001-63 and should be 
submitted by August 15, 2002.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change, as amended, (File No. SR-Phlx-
2001-63) is approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    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. 02-18840 Filed 7-24-02; 8:45 am]
BILLING CODE 8010-01-P