[Federal Register Volume 68, Number 34 (Thursday, February 20, 2003)]
[Notices]
[Pages 8322-8324]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-4048]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47359; File No. SR-Phlx-2003-03]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to the Automatic Execution of Eligible Orders 
During Locked Markets

February 12, 2003.
    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 January 21, 2003, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Exchange has filed the proposal as a ``non-controversial'' rule 
change pursuant to section 19(b)(3)(A) of the Act,\3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders the proposal effective upon filing 
with the Commission.\5\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The Phlx asked the Commission to waive the 5-day pre-filing 
requirement and the 30-day operative delay. See Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to amend Rule 1080, Philadelphia Stock Exchange 
Automated Options Market (AUTOM) and Automatic Execution System (AUTO-
X),\6\ to provide for the automatic execution of eligible orders during 
locked markets (i.e., 2 bid, 2 offer). Below is the of the proposed 
rule change. Proposed new language is italized. Proposed deletions are 
in [brackets].
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    \6\ AUTOM is the Exchange's electronic order delivery, routing, 
execution 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. See Phlx Rule 1080.
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    Philadelphia Stock Exchange Automated Options Market (AUTOM) and 
Automatic Execution System (AUTO-X)
    Rule 1080. (a)-(b) No change.
    (c) (i)--(iii) No change.
    (iv) Except as otherwise provided in this Rule, in the following 
circumstances, an order otherwise eligible for AUTO-X will instead be 
manually handled by the specialist:
    (A) the Exchange's disseminated market is crossed (i.e., 2\1/8\ 
bid, 2 offer) [or locked (i.e., 2 bid, 2 offer)], or crosses [or locks] 
the disseminated market of another options exchange;
    (B)--(I) No change.
    (d)--(j) No change.

[[Page 8323]]

    Commentary: 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 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
    The purpose of the proposal is to increase automated options order 
handling by enabling the Exchange to automatically execute eligible 
inbound orders during a locked market (i.e., 2 bid, 2 offer).\7\
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    \7\ The Exchange notes that it has previously filed to allow for 
the automatic execution of eligible inbound customer orders during a 
locked market. See File No. SR-Phlx-2002-86. Because other proposed 
rule changes included in that filing remain under discussion between 
Exchange staff and Commission staff as of the filing date of the 
instant proposal, the Exchange is submitting the instant proposed 
rule change in order to expedite the automatic execution of eligible 
orders during locked markets. Upon the completion of discussions 
with Commission staff, the Exchange intends to amend File No. SR-
Phlx-2002-86 to, inter alia, delete from that proposal those 
provisions that are included in the instant proposal.
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    Currently, Exchange Rule 1080(c)(iv)(A) provides that inbound 
orders otherwise eligible for automatic execution via AUTO-X will 
instead be manually handled by the specialist when the Exchange's 
disseminated market is crossed (i.e., 2\1/8\ bid, 2 offer) or locked, 
or crosses or locks the disseminated market of another options 
exchange.\8\ The proposal would amend Exchange Rule 1080(c)(iv)(A) to 
delete references to locked markets, such that all inbound orders that 
are otherwise eligible for automatic execution via AUTO-X would be 
automatically executed during locked markets. The Exchange believes 
that this should provide for the automatic execution of a greater 
number of eligible inbound orders than under the current rules. Orders 
received during crossed markets would continue to be handled manually 
by the specialist.
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    \8\ Under the Order Instituting Public Administrative 
Proceedings Pursuant to Section 19(h)(1) of the Securities Exchange 
Act of 1934, Making Findings and Imposing Sanctions, the Exchange 
(and the other respondent exchanges, the American Stock Exchange 
LLC, the Chicago Board Options Exchange, and the Pacific Exchange, 
Inc.) were required to adopt new, or amend existing, rules 
concerning automatic quotation and execution systems which specify 
the circumstances, if any, under which automated execution systems 
be disengaged or operated in any manner other than the normal manner 
set forth in the Exchange's rules and require the documentation of 
the reasons for each decision to disengage an automatic execution 
system or operate it in any manner other than the normal manner. See 
Securities Exchange Act Release No. 43268 (September 11, 2000), 
Administrative Proceeding File 3-10282 (the `` Settlement Order''). 
Pursuant to the Settlement Order, the Exchange adopted Rule 
1080(c)(iv) to codify situations in which orders are handled 
manually. At this time, the Exchange is proposing to automatically 
execute eligible inbound orders in one particular situation (i.e., 
during locked markets) that currently involves manual handling.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirement under section 6(b)(5) of the Act \9\ in that it is designed 
to promote just and equitable principles of trade, 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 by providing automatic executions for eligible orders 
during locked markets, which should result in a greater number of 
automatic executions for orders on the Exchange.
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    \9\ 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

    Because the proposed 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 30 days (or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest) after the date of the filing, the proposed rule change has 
become effective pursuant to section 19(b)(3)(A) of the Act \10\ and 
Rule 19b-4(f)(6) thereunder.\11\ 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 Exchange Act.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally must 
not become operative prior to 30 days after the date of the filing. In 
addition, a self-regulatory organization filing a proposed rule change 
under Rule 19b-4(f)(6)(iii) normally must give the Commission written 
notice of its intent to file the proposed rule change five days prior 
to the date of filing. However, Rule 19b-4(f)(6)(iii) permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive both the five-day pre-filing 
requirement and designate that the proposed rule change become 
operative immediately to allow automatic execution of eligible orders 
during locked markets.
    The Commission believes it is consistent with the protection of 
investors and the public interest to waive the five-day pre-filing 
requirement and designate the proposal immediately operative.\12\ 
Accelerating the operative date and waiving the pre-filing requirement 
should permit the Exchange to provide for a greater number of eligible 
inbound orders to be automatically executed during locked markets. The 
proposed rule change should help provide faster execution of certain 
eligible orders, while reducing the burden on the Exchange's 
specialists with respect to manual execution of these orders during 
locked markets. The proposal should benefit customers using the Auto-X 
system, as well as customers whose orders are residing in the 
Exchange's book during locked markets because more orders should be 
more timely executed during locked markets.
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    \12\ 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).
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    Furthermore, the Commission notes that Phlx's proposal is similar 
to proposed rule changes that were approved previously by the 
Commission.\13\ Thus, the proposed rule

[[Page 8324]]

change concerns issues that previously have been the subject of full 
comment periods pursuant to section 19(b) of the Act.\14\ Accordingly, 
the Commission designates the proposed rule change to be effective and 
operative upon filing with the Commission.
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    \13\ See Securities Exchange Release Nos. 42167 (November 22, 
1999), 64 FR 66954 (November 30, 1999) (order approving CBOE Rule 
6.8, Interpretation and Policy .02(b)(iv)); and 45032 (November 6, 
2001), 66 FR 57145 (November 14, 2001) (order relating to PCX's 
Automatic Execution System). Pursuant to telephone conversation 
between Richard Rudolph, Director and Counsel, Phlx, and Hong-Anh 
Tran, Special Counsel, Division of Market Regulation, Commission, on 
February 11, 2003.
    \14\ 15 U.S.C. 78s(b).
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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 section, 450 Fifth Street, NW., 
Washington, DC 20549-0609. 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-2003-03 and should be 
submitted by March 13, 2003.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-4048 Filed 2-19-03; 8:45 am]
BILLING CODE 8010-01-P