[Federal Register Volume 67, Number 155 (Monday, August 12, 2002)]
[Notices]
[Pages 52506-52507]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-20280]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46296; File No. SR-Phlx-2002-37]


Self-Regulatory Organization; Notice of Filings and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to a 10-Up AUTO-X Guaranteed Size for Option 
Orders for the Proprietary Account(s) of Off-Floor Broker-Dealers in 
the Top 120 Options

August 1, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule19b-4 thereunder,\2\ notice is hereby given that 
on July 22, 2002, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') submitted to 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. On July 31, 
2002, the Exchange filed Amendment No. 1 to the proposal.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter to John C. Roeser, Special Counsel, Division of 
Market Regulation, Commission, from Richard S. Rudolph, Director and 
Counsel, Phlx, dated July 26, 2002 (``Amendment No. 1''). In 
Amendment No. 1, the Exchange proposes to expand the definition of 
the Top 120 Options so that any equity option listed on the 
Exchange, regardless of when such equity option was listed can be 
considered a Top 120 Option. For purposes of calculating the sixty-
day abrogation period, the Commission considers the abrogation 
period to have begun on July 31, 2002.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to amend Exchange Rule 1080, Commentary .05(iv), 
to provide that the minimum guaranteed AUTO-X size shall be at least 
ten contracts for off-floor broker-dealer limit orders in the 120 most 
actively traded equity options (the ``Top 120 Options'').\4\ The text 
of the proposed rule change is set forth below. New text is in italics; 
deletions are in brackets.
---------------------------------------------------------------------------

    \4\ The Exchange has defined a Top 120 Option as one of the 120 
most actively traded equity options in terms of the total number of 
contracts that were traded nationally for a specified month based on 
volume reflected by The Option Clearing Corporation. See Securities 
Exchange Act Release No. 43201 (August 23, 2000), 65 FR 52465 
(August 29, 2000) (SR-Phlx-2000-71). See also Amendment No. 1, supra 
note 3.
---------------------------------------------------------------------------

Rule 1080. Philadelphia Stock Exchange Automated Options Market 
(AUTOM) and Automatic Execution System (AUTO-X)

    (a)-(j) No change.
    Commentary:
    .01-.03 No change.
    .04 Reserved.
    .05
    (1)-(iii) No change.
    (iv) (a) The minimum guaranteed AUTO-X size shall be at least 10 
contracts for off-floor broker-dealer limit orders in the 120 most 
actively traded equity options (the ``Top 120 Options''). A Top 120 
Option is defined as one of the 120 most actively traded equity options 
in terms of the total number of contracts that were traded nationally 
for a specified month based on volume reflected by The Options Clearing 
Corporation (``OCC'').
    (b) With respect to all other options. [O]off-floor broker-dealer 
limit orders may be eligible for automatic execution via AUTO-X on an 
issue-by-issue basis, subject to the approval of the Options Committee.
    (c) The AUTO-X guarantee for off-floor broker-dealer limit orders 
may be for a different number of contracts, on an issue-by-issue basis, 
than the AUTO-X guarantee for public customer orders, subject to the 
approval of the Options Committee.
    (v) 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 placed 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 guarantee automatic 
executions of at least ten contracts in Top 120 Options for orders 
delivered via AUTOM\5\ from off the floor of the

[[Page 52507]]

Exchange for the proprietary account(s) of off-floor broker-dealers.\6\
---------------------------------------------------------------------------

    \5\ AUTOM is the Exchange's electronic order delivery and 
reporting system, which provides for the automatic entry and routing 
of equity option and index option orders to the Exchange trading 
floor. Orders delivered through AUTOM may be executed manually, or 
certain orders are eligible for AUTOM's automatic execution feature, 
AUTO-X. Equity option and index option specialists are required by 
the Exchange to participate in AUTOM and its features and 
enhancements. Option orders entered by Exchange members into AUTOM 
are routed to the appropriate specialist unit on the Exchange 
trading floor.
    \6\ In April, 2002, the Commission approved the Exchange's 
proposal to adopt rules to allow limit orders for the proprietary 
accounts of off-floor broker-dealers to be delivered through AUTOM 
and, in certain issues, automatically executed via AUTO-X. See 
Securities Exchange Act Release No. 45758 (April 15, 2002), 67 FR 
19610 (April 22, 2002) (SR-Phlx-2001-40).
---------------------------------------------------------------------------

    Currently, off-floor broker-dealer limit orders may be eligible for 
automatic execution via AUTO-X on an issue-by-issue basis, subject to 
the approval of the Options Committee. The instant proposal would 
require specialists to provide automatic executions of at least ten 
contracts for eligible orders for the account(s) of off-floor broker-
dealers in the Top 120 Options.\7\ Specialists may elect to guarantee a 
larger size for automatic execution of such orders, up to the maximum 
size allowable under Exchange rules.\8\ The AUTO-X guarantee for off-
floor broker-dealer limit orders may be for a different number of 
contracts, on an issue-by-issue basis, than the AUTO-X guarantee for 
public customer orders, subject to the approval of the Options 
Committee.\9\
---------------------------------------------------------------------------

    \7\ The initial proposal would have limited the definition of 
the Top 120 Options to options listed on the Exchange after January 
1, 1997. See Amendment No. 1, supra note 3.
    \8\ The current maximum allowable guaranteed size for automatic 
execution of eligible orders via AUTO-X is 250 contracts. See 
Exchange Rule 1080(c).
    \9\ See Exchange Rule 1080, Commentary .05(iv).
---------------------------------------------------------------------------

    The Exchange believes that the instant proposal should enhance 
competition in the options markets by enabling it to attract and 
compete for order flow in the Top 120 Options by guaranteeing automatic 
executions for eligible orders for the proprietary account(s) of off-
floor broker-dealers. By requiring the automatic execution of such 
orders, the Exchange can guarantee order flow providers automatic 
executions in Top 120 Options for a minimum of ten contracts, thus 
ensuring that their proprietary orders would be handled automatically 
and reported expeditiously.
2. Statutory Basis
    For these reasons, the Exchange believes that the proposed rule 
change is consistent with section 6 of the Act \10\ in general, and 
with section 6(b)(5) of the Act \11\ specifically, in that it is 
designed to perfect the mechanisms of a free and open market and the 
national market system, protect investors and the public interest and 
promote just and equitable principles of trade by adding a requirement 
designed to attract order flow generated for the proprietary accounts 
of off-floor broker-dealers, thus fostering competition among exchanges 
for such order flow.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx believes that the proposed rule change does not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing rule change: (i) Does not significantly 
affect the protection of investors or the public interest; (ii) does 
not impose any significant burden on competition; and (iii) does not 
become operative for thirty days from the date of filing, or such time 
as the Commission may designate if consistent with the protection of 
investors and the public interest,\12\ the proposed rule change has 
become effective upon filing pursuant to section 19(b)(3)(A) of the Act 
\13\ and Rule 19b-4(f)(6) \14\ thereunder.
---------------------------------------------------------------------------

    \12\ The Exchange provided the Commission with notice of its 
intent to file the proposed rule change more than five days prior to 
the filing date.
    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii), the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and public interest. The Exchange seeks to have 
the proposed rule change become operative upon filing and has requested 
that the Commission waive the thirty-day operative period in order that 
the Exchange may implement the proposal promptly and in an orderly 
fashion. The Commission, consistent with the protection of investors 
and the public interest, has determined to make the proposed rule 
change operative immediately.\15\ 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.
---------------------------------------------------------------------------

    \15\ 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).
---------------------------------------------------------------------------

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 
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 also will be 
available for inspection and copying at the principal office of the 
Phlx. All submissions should refer to File No. SR-Phlx-2002-37 and 
should be submitted by September 3, 2002.

    For the Commission, by the Division of Market Regulation, 
Pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-20280 Filed 8-9-02; 8:45 am]
BILLING CODE 8010-01-M