[Federal Register Volume 67, Number 180 (Tuesday, September 17, 2002)]
[Notices]
[Pages 58669-58670]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-23533]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46481; File No. SR-Phlx-2002-48]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to PACE Guarantees in Securities Subject to ITS 
Plan Exemption

September 10, 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 September 4, 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 have been prepared by the self-
regulatory organization. On September 9, 2002, the Exchange submitted 
Amendment No. 1 to the proposed rule change.\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Carla Behnfeldt, Director, Legal Department 
New Product Development Group, Phlx, to Katherine A. England, 
Assistant Director, Division of Market Regulation, Commission dated 
September 6, 2002 (``Amendment No. 1''). In Amendment No. 1, the 
Exchange consented to the Commission's treatment of the proposed 
rule change as being filed as a stated policy, practice or 
interpretation with respect to the meaning, administration or 
enforcement of an existing rule pursuant to section 19(b)(3)(A) of 
the Exchange Act. 15 U.S.C. 78s(b)(3)(A). In addition, in Amendment 
No. 1, the Exchange provided rule text to accompany the proposed 
rule change.
---------------------------------------------------------------------------

    The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

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

    The Phlx proposes to exempt transactions, beginning September 4, 
2002 for a period of 30 days ending on October 4, 2002, in certain 
exchange-traded fund (``ETF'') shares from Supplementary Material 
Section .10(a)(iii) of Exchange Rule 229, Philadelphia Stock Exchange 
Automated Communication and Execution System (``PACE'').\4\ Section 
.10(a)(iii) of Exchange Rule 229 currently provides that if 100 or more 
shares print through the limit price on any exchange(s) eligible to 
compose the PACE Quote \5\ after the time of entry of any such order 
into PACE, the specialist shall execute all such orders at the limit 
price without waiting for an accumulation of 1000 shares to print at 
the limit price on the New York market.\6\
---------------------------------------------------------------------------

    \4\ PACE is the Exchange's Automated Communication and Execution 
System. PACE provides a system for the automatic execution of orders 
on the Exchange equity floor under predetermined conditions.
    \5\ PACE Quote is defined in Rule 229 as the best bid/ask quote 
among the American, Boston, Cincinnati, Chicago, New York, Pacific 
or Philadelphia Stock Exchange, or the Intermarket Trading System/
Computer Assisted Execution System (``ITS/CAES'') quote, as 
appropriate.
    \6\ To be understood, Section .10(a)(iii) must be read in 
conjunction with the preceding Section of the PACE Rule. 
Supplementary Material Section .10(a)(ii) provides as follows:
    Non-Marketable Limit Orders--Unless the member organization 
entering orders otherwise elects, round-lot limit orders up to 500 
shares and the round-lot portion of PRL limit orders up to 599 
shares which are entered at a price different than the PACE Quote 
will be executed in sequence at the limit price when an accumulative 
volume of 1000 shares of the security named in the order prints at 
the limit price or better on the New York market after the time of 
entry of any such order into PACE. For each accumulation of 1000 
shares which have been executed at the limit price on the New York 
market, the specialist shall execute a single limit order of a 
participant up to a maximum of 500 shares for each round-lot limit 
order up to 500 shares or the round-lot portion of a PRL limit order 
up to 599 shares.
---------------------------------------------------------------------------

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 Exchange 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 Exchange 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to adopt an exemption 
from Phlx Rule 229.10(a)(iii) beginning September 4, 2002 for a period 
of 30 days ending on October 4, 2002. This exemption would apply to the 
ETFs tracking the Nasdaq-100 Index (``QQQs''), the Dow Jones Industrial 
Average (``DIAMONDs''), and the Standard & Poor's 500 Index 
(``SPDRs'').\7\ This exemption would correlate with a recent exemption 
from the ITS Plan issued by the Commission (the ``ITS Exemption'').\8\
---------------------------------------------------------------------------

    \7\ The Exchange does not currently trade DIAMONDs or SPDRs but 
may determine to do so in the future. The Exchange does trade QQQs. 
The Nasdaq-100[reg], Nasdaq-100 Index[reg], 
Nasdaq[reg], The Nasdaq Stock Market[reg], 
Nasdaq-100 SharesSM, Nasdaq-100 TrustSM, 
Nasdaq-100 Index Tracking StockSM, and QQQSM 
are trademarks or service marks of The Nasdaq Stock Market, Inc. 
(``Nasdaq'') and have been licensed for use for certain purposes by 
the PHLX pursuant to a License Agreement with Nasdaq. The Nasdaq-100 
Index'' (the ``Index'') is determined, composed, and calculated by 
Nasdaq without regard to the Licensee, the Nasdaq-100 
TrustSM, or the beneficial owners of Nasdaq-100 
SharesSM. Nasdaq has complete control and sole discretion 
in determining, comprising, or calculating the Index or in modifying 
in any way its method for determining, comprising, or calculating 
the Index in the future.
    \8\ See Securities Exchange Act Release No. 46428 (August 28, 
2002) (Order Pursuant to section 11A of the Securities Exchange Act 
of 1934 and Rule 11Aa3-2(f) thereunder Granting a De Minimis 
Exemption for Transactions in Certain Exchange-Traded Funds from the 
Trade-Through Provisions of the Intermarket Trading System.). The 
ITS Plan is a national market system plan approved by the Commission 
pursuant to section 11A of the Act and Rule 11Aa3-2 thereunder.
---------------------------------------------------------------------------

    Phlx Rule 229.10(a)(iii) requires a Phlx specialist to execute 
certain orders that are traded-through by another market center. 
Previously, although the specialist had this obligation the specialist 
was, in turn, entitled to ``satisfaction'' of those orders pursuant to 
Section 8(d) of the ITS Plan. Now, where trading through is no longer 
prohibited by the ITS Plan, as enumerated in the ITS Exemption, the 
specialist does not have recourse to seek ``satisfaction'' for these 
orders and is alone responsible for those executions. Thus, the Phlx 
believes that its provision guaranteeing an execution no longer makes 
sense. Moreover, the provision now unduly burdens the specialist by 
requiring the specialist to execute orders in situations where the 
specialist does not have access to trading at that price.

[[Page 58670]]

2. Statutory Basis
    The Exchange represents that 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 in that it is designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system; and, in general, to 
protect investors and the public interest, and is not designed to 
permit unfair discrimination between customers, issuers, brokers or 
dealers. By adopting the proposed exemption, the Exchange avoids 
burdening specialists with the obligation to fill an order in 
circumstances where an external event triggered the execution 
obligation and the specialist could not access trading at that price.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 foregoing rule change constitutes a stated policy, practice or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of the Exchange and therefore, has 
become effective pursuant to section 19(b)(3)(A)(i) of the Act \11\ and 
subparagraph (f)(1) of Rule 19b-4 thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A)(i).
    \12\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------

    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 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-2002-48 and 
should be submitted by October 8, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-23533 Filed 9-16-02; 8:45 am]
BILLING CODE 8010-01-P