[Federal Register Volume 68, Number 84 (Thursday, May 1, 2003)]
[Notices]
[Pages 23353-23354]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10785]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47738; File No. SR-Phlx-2001-28]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Who 
Allocates Options Trades

April 25, 2003.
    On March 9, 2001, the Philadelphia Stock Exchange, Inc. (``Phlx'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change 
relating to who allocates options trades.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    On January 31, 2002, May 17, 2002, July 8, 2002, and March 12, 
2003, Phlx submitted Amendment Nos. 1, 2, 3, and 4 to the proposed rule 
change, respectively.\3\ The proposed rule change, as amended, was 
published for comment in the Federal Register on March 25, 2003.\4\ The 
Commission received no comments on the proposal.
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    \3\ See letter from Edith Hallahan, First Vice President and 
Deputy General Counsel, Phlx, to Nancy J. Sanow, Assistant Director, 
Division of Market Regulation (``Division''), Commission, dated 
January 30, 2002 (``Amendment No. 1''); and letters from Richard S. 
Rudolph, Director and Counsel, to Nancy J. Sanow, Assistant 
Director, Division, Commission, dated May 16, 2002, July 5, 2002, 
and March 12, 2003 (``Amendment Nos. 2, 3, and 4'').
    The proposed rule change was submitted by Phlx pursuant to 
subparagraph IV.B.j. of the Commission's Order of September 11, 
2000, which requires the Exchange (among other respondent options 
exchanges) to adopt new, or amend existing, rules to make express 
any practice or procedure ``whereby Market-Makers trading any 
particular option class determine by agreement the spreads or option 
prices at which they will trade any option class, or the allocation 
of orders in that option class.'' Order Instituting Public 
Administrative Proceedings Pursuant to Section 19(h)(1) of the 
Securities Exchange Act of 1934, Making Findings and Imposing 
Remedial Sanctions, Securities Exchange Act Release No. 43268 
(September 11, 2000).
    \4\ See Securities Exchange Act Release No. 47500 (March 13, 
2003), 68 FR 14456.
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    The proposal would amend the Exchange's Option Floor Procedure 
Advice F-2 (``Advice F-2''), governing who is responsible for 
allocating, matching, and time stamping an options trade in specific 
situations, and for reporting the trade upon its execution. The 
proposal would also codify paragraph (a) of Advice F-2, as amended, in 
the Exchange's rules as new paragraph (vi) of Phlx Rule 1014(g).
    The proposal specifies that, in trades involving a floor broker, 
the floor broker would be assigned the responsibility for allocating, 
matching, time stamping, and reporting, but provides that the floor 
broker would be permitted to delegate this responsibility to the 
specialist or an assistant under the specialist's supervision. The 
proposed rule change would also specify that, in all other cases where 
the specialist is a participant, the specialist or an assistant under 
the specialist's supervision would be required to allocate the trade. 
The responsibility for allocating trades in which neither the floor 
broker nor the specialist is a participant would remain the same under 
the proposed rule change. The proposal would also increase the fines 
for violation of the Exchange's rules on allocation and reporting of 
trades.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange \5\ and, in 
particular, the requirements of Section 6 of the Act \6\ and the rules 
and regulations thereunder. The Commission believes

[[Page 23354]]

that the proposed rule change is consistent with Section 6(b)(5) of the 
Act,\7\ because it assigns the responsibility for trade allocation and 
reporting in an appropriate and reasonable manner. The Phlx seeks in 
addition to permit a floor broker to delegate his or her responsibility 
to the specialist in view of the different set of burdens that floor 
brokers face due to changed economic and technological realities on the 
Exchange floor. The Commission believes it is reasonable to allow the 
specialist, who is always in the trading crowd, to assume the 
responsibility if he or she is willing to do so. The Commission further 
notes that the proposed rule change would add a provision requiring the 
allocating party in each trade to record his or her role in a manner 
that would facilitate investigation of any allocation after the fact 
should questions arise. The Commission believes that the proposed 
increases to the fine schedule associated with the trade allocation 
function and reporting responsibility are reasonable to help ensure 
compliance with these rules.
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    \5\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-Phlx-2001-28) be, 
and it hereby is, approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-10785 Filed 4-30-03; 8:45 am]
BILLING CODE 8010-01-P