[Federal Register Volume 68, Number 26 (Friday, February 7, 2003)]
[Notices]
[Pages 6528-6529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3099]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47296; File No. SR-Phlx-2002-67]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by Philadelphia Stock Exchange, Inc., Relating to Rules 
Governing the Intermarket Linkage, and Notice of Filing and Order 
Granting Accelerated Approval to Amendment No. 1 Thereto

January 31, 2003.

I. Introduction

    On October 29, 2002, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to adopt new rules governing the 
operation of the intermarket linkage (the ``Linkage''). The proposed 
rule change was published for comment in the Federal Register on 
December 27, 2002.\3\ The Commission received no comments on the 
proposed rule change. On January 31, 2003, the Exchange filed Amendment 
No. 1 to the proposed rule change.\4\ This order approves the

[[Page 6529]]

proposed rule change, provides notice of filing of Amendment No. 1 and 
grants accelerated approval to Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 47062 (December 20, 
2002), 67 FR 79222.
    \4\ See letter from Richard Rudolph, Director and Counsel, Phlx, 
to Deborah Flynn, Assistant Director, Division of Market Regulation, 
Commission, dated January 30, 2003 (``Amendment No. 1''). In 
Amendment No. 1, the Exchange proposes to: (1) Amend the definition 
of ``Reference Price'' contained in proposed Phlx Rule 1083 to 
conform to the definition of such term in the Plan for the Purpose 
of Creating and Operating an Intermarket Options Linkage (``Plan''); 
(2) amend the definition of ``Linkage Order'' contained in proposed 
Phlx Rule 1083 to state that such orders are ``Immediate or Cancel 
Orders''; (3) amend proposed Phlx Rule 1083 to define an ``Immediate 
or Cancel Order'' as a limited price order that is to be executed in 
whole or in part as soon as such order is received, and the portion 
not executed, if any, is immediately cancelled; (4) amend proposed 
Phlx Rule 1084 to clarify when members may send linkage orders when 
markets are non-firm; (5) amend proposed Phlx Rule 1084 to include a 
provision regarding mitigation of damages; (6) amend proposed Phlx 
Rule 1085 to clarify language regarding liability for trade-throughs 
at the end of the trading day and to request approval of this 
provision only for a one-year pilot period; (7) amend proposed Phlx 
Rule 1085 to clarify that members may not engage in a pattern or 
practice of trading through; and (8) make other non-substantive 
revisions to the proposed rules.
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II. Description of Proposal

    In general, the proposed rules contain relevant definitions, 
establish the conditions pursuant to which market makers may enter 
Linkage orders, impose obligations on the Exchange regarding how it 
must process incoming Linkage orders, and establish a general standard 
that members should avoid trade-throughs.\5\ The proposed rules 
establish potential regulatory liability for members who engage in a 
pattern or practice of trading through other exchanges, whether or not 
the exchanges traded through participate in the Linkage, provide 
procedures to unlock and uncross markets, and codify the ``80/20 Test'' 
contained in section 8(b)(iii) of the Plan,\6\ which provides that a 
market maker on an Exchange would be restricted from sending principal 
orders (other than P/A orders, which reflect unexecuted customer 
orders) through the Linkage if the market maker effects less than 80 
percent of specified order flow on the Exchange.
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    \5\ Trade-throughs occur when broker-dealers execute customer 
orders on one exchange at prices inferior to another exchange's 
disseminated quote.
    \6\ Approved by the Commission in Securities Exchange Act 
Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000), as 
subsequently amended. See Securities Exchange Act Release Nos. 44482 
(June 27, 2001), 66 FR 35470 (July 5, 2001); 46001 (May 30, 2002), 
67 FR 38687 (June 5, 2002); 47274 (January 29, 2003); and 47298 
(January 31, 2003).
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III. Discussion

    The Commission has reviewed the Phlx's proposed rule change and 
finds that the proposal is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange,\7\ and with the requirements of section 6(b).\8\ 
In particular the Commission finds that the proposed rule change is 
designed to prevent fraudulent and manipulative acts and practices, 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 for a free and open market and a national market system, and, 
in general, to protect investors and the public interest in accordance 
with section 6(b)(5) of the Act.\9\
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    \7\ In approving this rule proposal, the Commission notes that 
it has also considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the rules proposed by the Phlx will 
adequately govern the operation of the Linkage as envisioned in the 
Plan. The Commission believes that these rules will help to ensure that 
the Linkage is operated fairly and effectively, in accordance with the 
principles of the Act and the Plan.
    The Commission also finds good cause for approving proposed 
Amendment No. 1 prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. 
Amendment No. 1 proposes several changes to the Exchange's original 
proposal that are designed to conform the Exchange's rules governing 
linkage more closely to the Plan. The provisions of the Plan have 
already been subject to notice and comment, and have been approved by 
the Commission. The changes proposed in Amendment No. 1 do not raise 
any novel regulatory issues, and therefore, it is appropriate for the 
Commission to accelerate approval of Amendment No. 1.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1 to the proposed rule change, 
including whether Amendment No. 1 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 Amendment No. 1 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 Exchange. All submissions should refer 
to File No. SR-Phlx-2002-67 and should be submitted by February 28, 
2003.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-Phlx-2002-67), be, and 
hereby is, approved, and that Amendment No. 1 to the proposed rule 
change be, and hereby is, approved on an accelerated basis.
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    \10\ 15 U.S.C. 78s(b)(2).

    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. 03-3099 Filed 2-6-03; 8:45 am]
BILLING CODE 8010-01-P