[Federal Register Volume 67, Number 191 (Wednesday, October 2, 2002)]
[Notices]
[Pages 61944-61946]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25006]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46545; File No. SR-Phlx-2002-49]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to Extension 
of PACE Guarantee Exemption

September 24, 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 12, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    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 amend the first paragraph of Supplementary 
Material Section .10(a)(iii) of Exchange Rule 229, Philadelphia Stock 
Exchange Automated Communication and Execution System (PACE''),\3\ to 
extend a current exemption from that provision so that it will be 
effective for as long as the Commission's exemption from section 8(d) 
of the ITS Plan issued by Commission Order dated August 28, 2002 (the 
``ITS Exemption'') remains in effect.\4\
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    \3\ 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.
    \4\ See Securities Exchange Act Release No. 46428, 67 FR 56607 
(September 4, 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.

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[[Page 61945]]

    The text of the proposed rule change is available at the Phlx and 
the Commission.

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Exchange Rule 229, Supplementary Material Section .10(a)(iii) 
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\ On 
August 28, 2002, the Commission issued the ITS Exemption which applies 
to the exchange-traded funds (``ETFs'') tracking the Nasdaq-100 Index 
(``QQQs''), the Dow Jones Industrial Average (``DIAMONDs''), and the 
Standard & Poor's 500 Index (``SPDRs'').\7\ On September 4, 2002 (the 
effective date of the ITS Exemption) the Exchange filed a proposed rule 
change for immediate effectiveness to adopt an exemption from the first 
paragraph of Phlx Rule 229.10(a)(iii) beginning September 4, 2002 for a 
period of 30 days ending on October 4, 2002.\8\ This exemption was 
intended correlate with the ITS Exemption.
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    \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.
    \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 Shares, SM, 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 Philadelphia Stock Exchange pursuant to a 
License Agreement with Nasdaq. The Nasdaq-100 Index[reg] (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. 46481 (September 10, 
2002), 67 FR 58669 (September 17, 2002) (SR-Phlx-2002-48).
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    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. Thus, the 
Exchange is proposing that the existing exemption from the requirements 
of the first paragraph of Rule 229 Supplementary Material Section 
10(a)(iii), which expires on October 4, 2002, remain in effect so long 
as the ITS Exemption remains in effect, including by any extensions the 
Commission may determine to provide.
2. Statutory Basis
    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 beginning October 4, 2002, 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.
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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 either solicited or received.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such other period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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

[[Page 61946]]

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-2002-49 and 
should be submitted by October 23, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-25006 Filed 10-1-02; 8:45 am]
BILLING CODE 8010-01-P