[Federal Register Volume 67, Number 180 (Tuesday, September 17, 2002)]
[Notices]
[Page 58654]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-23605]



[[Page 58654]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46474; File No. 4-208]


Intermarket Trading System; Order Granting Approval of the 
Nineteenth Amendment to the ITS Plan Relating to the Philadelphia Stock 
Exchange, Inc.'s Implementation of a Remote Specialist Program

    On May 3, 2002, the Intermarket Trading System Operating Committee 
(``ITSOC'') submitted to the Securities and Exchange Commission 
(``Commission''), pursuant to Section 11A of the Securities Exchange 
Act of 1934 (``Act''),\1\ and Rule 11A3a3-2 thereunder,\2\ a proposed 
amendment (''Nineteenth Amendment'') to the restated ITS Plan.\3\ The 
proposed amendment recognized the Phlx's implementation of a remote 
specialist program. Notice of the proposed amendment appeared in the 
Federal Register on June 26, 2002.\4\ The Commission received no 
comments on the proposed amendment. This order approves the proposed 
amendment.
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    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 240.11Aa3-2.
    \3\ The ITS is a National Market System (``NMS'') plan, which 
was designed to facilitate intermarket trading in exchange-listed 
equity securities based on current quotation information emanating 
from the linked markets. See Securities Exchange Act Release No. 
19456 (January 27, 1983), 48 FR 4938 (February 3, 1983).
    The ITS Participants include the American Stock Exchange LLC 
(Amex''), the Boston Stock Exchange, Inc. (``BSE''), the Chicago 
Board Options Exchange, Inc. (``CBOE''), the Chicago Stock Exchange, 
Inc. (''CHX''), the Cincinnati Stock Exchange, Inc. (``CSE''), the 
National Association of Securities Dealers, Inc. (``NASD''), the New 
York Stock Exchange, Inc. (``NYSE''), the Pacific Exchange, Inc. 
(``PCX''), and the Philadelphia Stock Exchange, Inc. (``Phlx'') 
(''Participants'').
    \4\ See Securities Exchange Act Release No. 46091 (June 19, 
2002), 67 FR 43182.
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    The proposed amendment recognizes the Phlx's implementation of its 
remote specialist program.\5\ Specifically, the ITSOC proposes to amend 
Sections 1 (``Definitions''), 6(a)(i)(A) (``Receipt of Quotations''), 
6(a)(ii) (``Description of ITS Transactions''), and 8(a) (``System 
Access'') of the ITS Plan to include references regarding the premises 
of Phlx Remote Specialists on which ITS stations are located, and 
define the terms ``Phlx Remote Specialist,'' \6\ ``Phlx Registered 
Specialist,'' \7\ and ``Phlx Designated Specialist.'' \8\
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    \5\ See Securities Exchange Act Release No. 45184 (December 21, 
2001), 67 FR 622 (January 4, 2002) (order approving SR-Phlx-2001-
98).
    \6\ The term ``Phlx Remote Specialist'' is defined in the 
proposed amendment as a Phlx Registered Specialist who is authorized 
by Phlx Rule 461 to conduct his/her regular specialist trading 
activities at remote locations off the floor of the Phlx.
    \7\ The term ``Phlx Registered Specialist'' is defined in the 
proposed amendment as a Phlx member who has been appointed and 
registered pursuant to Phlx Rule 202 to act as a market maker in one 
or more securities traded through ITS.
    \8\ The term ``Phlx Designated Specialist'' is defined in the 
proposed amendment as a Phlx Registered Specialist appointed by the 
Phlx to coordinate the handling of commitments to trade received by 
the Phlx.
    The Designated Specialist (``DS'') is responsible for responding 
to incoming ITS Commitments. In the case of a Commitment that has 
been divided among more than one Specialist, the DS is (a) the 
Specialist who has been allocated the largest individual portion of 
the Commitment pursuant to the split, or (b) if two or more 
Specialists each receives an equal amount of the Commitment split 
which is larger than the amount allocated to any other Specialist, 
the Specialist who first quoted the volume. Any portion of the 
Commitment that remains unallocated after the Commitment split (the 
``Remaining Portion'') is made available for execution by the 
Primary Specialist and the Remaining Portion is ignored for purposes 
of determining the Designated Specialist.
    Inbound ITS Commitment volume is split based on PHLX ``available 
volume'' at the time the Commitment arrives, which may consist of 
two or more Specialists. The ``available volume'' is (1) the 
displayed bid or offer size, plus (2) any non-displayed automatic 
matchable interest (in each case, less any volume that has been 
marked by the system as unavailable because of either a trade that 
has occurred or because of another incoming Commitment that was 
received prior to the arrival of the Commitment with respect to 
which the split is being made).
    Automatic matchable interest represents manually quoted interest 
and round lot limit order volume other than (a) block limit orders 
that have not been displayed, (b) All Or None limit orders, and (c) 
Short Sale limit orders that have not been displayed. The incoming 
ITS Commitment is split among the available volume based on price, 
then account type (agency before principal) and then time, if the 
available volume is greater than the inbound ITS Commitment. For 
instance, as between two principal quotes at the same price, the 
earlier in time participates first and may fill the entire incoming 
Commitment up to the size of his or her bid/offer.
    In the case of a Commitment divided among more than one 
Specialist, after a certain time has expired (exposing their split 
of the ITS Commitment to eligible specialists and allowing the non-
Designated Specialists to respond), then the Designated Specialist 
may respond, which causes a single Phlx response to be sent. See 
email from Carla Behnfeldt, Phlx, to Katherine England, Assistant 
Director, Joseph Morra, Special Counsel, and Lisa N. Jones, 
Attorney, Division of Market Regulation, Commission, dated Septeber 
5, 2002.
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    The Commission finds that the proposed amendment is consistent with 
the Act and the rules and regulations thereunder applicable to the ITS 
and, in particular, Sections 11A(a)(1)(C)(ii) and (D) of the Act,\9\ 
and Rule 11A3-2(c)(2) thereunder,\10\ which require among other things, 
that a plan amendment must be necessary or appropriate in the public 
interest, for the protection of investors and the maintenance of fair 
and orderly markets, and shall remove impediments to, and perfect the 
mechanisms of, a national market system.
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    \9\ 15 U.S.C. 78k-1(a)(1)(C) (ii) and (D).
    \10\ 17 CFR 240.11A3-2(c)(2).
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    The proposal provides for the recognition of the Phlx's use of 
remote specialists to carry out their specialist operations off the 
floors of the Phlx, similar to the BSE and the PCX.\11\ The Commission 
believes that the proposed amendment should improve the efficiency and 
reliability of ITS.
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    \11\ See Securities and Exchange Act Release No. 43520 (November 
3, 2000), 65 FR 68165 (November 14, 2000) (order approving the 
recognition of BSE's and PCX's remote specialist programs in ITS).
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    It is therefore ordered, pursuant to Section 11A(a)(3)(B) of the 
Act,\12\ that the proposed Nineteenth Amendment be, and hereby is, 
approved.
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    \12\ 15 U.S.C. 78k-1(a)(3)(B).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(29).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-23605 Filed 9-16-02; 8:45 am]
BILLING CODE 8010-01-P