[Federal Register Volume 68, Number 81 (Monday, April 28, 2003)]
[Notices]
[Pages 22447-22449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10380]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47714; File No. SR-Phlx-2003-25]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the Philadelphia Stock Exchange, 
Inc. Relating to Automatic Price Improvement for Buy Orders in 
Securities Exempt for the Short Sale Rule

April 22, 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 April 3, 2003, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission''), the proposed rule change as described in items I, II, 
and III below, which items have been prepared by Phlx. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Supplementary Material .07 to Phlx 
rule 229 to modify the Exchange's Automatic Price Improvement (``API'') 
program to allow specialists to choose to improve buy orders in 
securities that are exempted from or otherwise not subject to rule 10a-
1 under the Act \3\ (the ``Short Sale rule'').
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    \3\ 17 CFR 240.10a-1.

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[[Page 22448]]

    The text of the proposed rule change is set forth below. Additions 
are in italics. Deletions are in brackets.

Rule 229. Philadelphia Stock Exchange Automated Communication and 
Execution System (PACE)

* * * * *

Supplementary Material

* * * * *
    .01-.06 No Change
    .07 (a)-(b) No Change
    (c) Price Improvement for PACE Orders
    (i) Automatic Price Improvement--Where the specialist voluntarily 
agrees to provide automatic price improvement to all customers and all 
eligible market orders in a security, automatically executable market 
and marketable limit orders in New York Stock Exchange and American 
Stock Exchange listed securities received through PACE for 599 shares 
or less shall be provided with automatic price improvement from the 
PACE Quote when received either $.01 or a percentage of the PACE Quote 
when the order is received for equities trading in decimals beginning 
at 9:30 a.m., except where:
    (A) A buy order would be improved to a price less than the last 
sale (except as provided in (F) below) or a sell order would be 
improved to a price higher than the last sale (except as provided in 
(E) below); or
    (B) A buy order would be improved to the last sale price which is a 
downtick (except as provided in (F) below) or a sell order would be 
improved to the last sale price which is an uptick (except as provided 
in (E) below). The PACE System will determine whether the last sale 
price is a downtick or an uptick. The [Pace] PACE System does not 
recognize changes from the previous day's close.
    In these situations, the order is not eligible for automatic price 
improvement, and is, instead, automatically executed at the PACE Quote. 
A specialist may voluntarily agree to provide automatic price 
improvement to larger orders in a particular security to all customers 
under this provision.
    A specialist may choose to provide automatic price improvement of: 
(i) $.01 where the PACE Quote is either $.05 or greater, or $.03 or 
greater, or (ii) where the PACE Quote is $.02 or greater, a percentage 
of the PACE Quote when the order is received, up to 50%, rounded to the 
nearest penny, and at least $.01, in a particular security to all 
customers.
    (C) Automatic price improvement will not occur for odd-lot orders, 
nor where the execution price before or after the application of 
automatic price improvement would be outside the primary market high/
low range for the day, if so elected by the entering member 
organization.
    (D) The POES window of Supplementary Material .05 above does not 
apply where an order is subject to automatic price improvement or 
manual price protection.
    (E) Sell Order Enhancement I--A specialist may choose to give 
automatic price improvement to all sell orders of 100 shares or more, 
as determined by the specialist, in a particular security which would 
be improved to the last sale on an uptick; or
    Sell Order Enhancement II--A specialist may choose to give 
automatic price improvement to all sell orders of 100 shares or more, 
as determined by the specialist, in a particular security which would 
be improved to a price higher than the last sale.
    (F) Buy Order Enhancement--A specialist may choose to give 
automatic price improvement to all buy orders, as determined by the 
specialist, in any security that is exempted from or otherwise not 
subject to Securities Exchange Act rule 10a-1.
    .08-.22 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 Phlx 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 proposed rule change is to expand the number of 
orders eligible to receive price improvement by allowing Exchange 
equity specialists to offer API to all buy orders in securities that 
are exempted from or otherwise not subject to the Short Sale rule.\4\ 
The Exchange's API program allows specialists to provide automatic 
price improvement to automatically executable market and marketable 
limit orders in New York Stock Exchange, Inc. and American Stock 
Exchange LLC listed securities received through Phlx's Automated 
Communication and Execution System (``PACE'') \5\ for 599 shares or 
less of either $.01 or a percentage of the PACE Quote when the order is 
received.\6\ Specialists may choose to offer API in each individual 
specialty security. If API is offered in an individual security, then 
it must offer it to all customers and all eligible market orders in 
that security.
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    \4\ The Exchange also proposes to correct a typographical error 
in the presentation of the word ``PACE'' in Supplementary Material 
.07(c)(i)(B) to Phlx rule 229.
    \5\ PACE is the Exchange's automated order routing, delivery, 
execution and reporting system for listed securities. See Phlx rule 
229.
    \6\ See Supplementary Material .07 to Phlx rule 229.
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    Currently, API is not available to certain buy orders if the 
execution price of those buy orders would be less than the last sale or 
at the last sale, provided such execution would create a downtick.\7\ 
The purpose of these restrictions is to prevent the possibility of a 
violation of the Short Sale rule on the part of a specialist selling 
against the buy order. In securities that are exempted from or 
otherwise not subject to the Short Sale rule (such as many of the Index 
Fund Shares, Trust Shares and Trust Issued Receipts that are traded or 
may be traded on the Phlx),\8\ the Exchange believes that there is no 
possibility of a violation of the Short Sale rule by the specialist 
when selling to buy orders in these securities.\9\ By allowing API for 
buy orders in these securities, the Exchange believes that customers 
should receive more opportunities for price improvement. While 
specialists in such securities may choose to give price improvement to 
all such buy orders under this proposal, this is a voluntary additional 
feature of API. The Exchange states that participation in the API 
program will remain voluntary, as is participation in PACE.\10\
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    \7\ See Supplementary Material .07(c)(i)(A) to Phlx rule 229.
    \8\ See Phlx rule 803(i)-(j), (l).
    \9\ The Exchange states that it would issue a regulatory 
circular to its members informing them of which securities are 
exempt from the Short Sale rule, and thus available for API under 
the proposed rule change. Telephone conversation between John 
Dayton, Assistant Secretary and Counsel, Phlx, and Christopher 
Solgan, Attorney, Division, Commission, on April 16, 2003.
    \10\ See Phlx rule 229.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the Act, including section 6(b) of the

[[Page 22449]]

Act,\11\ and furthers the objectives of section 6(b)(5) of the Act,\12\ 
in particular, in that it is intended 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 to protect 
investors and the public interest by expanding the opportunity for 
price improvement.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 longer 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 Phlx 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 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-2003-25 and 
should be submitted by May 19, 2003.

    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)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-10380 Filed 4-25-03; 8:45 am]
BILLING CODE 8010-01-P