[Federal Register Volume 68, Number 111 (Tuesday, June 10, 2003)]
[Notices]
[Pages 34692-34693]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14566]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47975; File No. SR-Phlx-2003-25]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to Automatic 
Price Improvement for Buy Orders in Securities Exempt for the Short 
Sale Rule

June 4, 2003.

I. Introduction

    On April 3, 2003, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') 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 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 the 
``tick'' requirements of Rule 10a-1 under the Act \3\ (the ``Short Sale 
Rule''). The proposed rule change was published for comment in the 
Federal Register on April 28, 2003.\4\ The Commission received no 
comment letters on the proposed rule change. This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.10a-1. Paragraph (a) of Rule 10a-1 covers 
transactions in any security registered on a national securities 
exchange, if trades in such security are reported pursuant to an 
``effective transaction reporting plan'' (``Reported Securities''). 
A short sale of a Reported Security listed on a national securities 
exchange may not be effected at a price either: (1) below the last 
reported price of a transaction reported in the consolidated 
transaction reporting system (``minus tick''); or (2) at the last 
reported price if that price is lower than the last reported 
different price (``zero-minus tick'').''
    \4\ See Securities Exchange Act Release No. 47714 (April 22, 
2003), 68 FR 22447.
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II. Description of the Proposal

    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 (``Amex'') listed securities received through Phlx's 
Automated Communication and Execution System (``PACE'') \5\ for 599 
shares or less of

[[Page 34693]]

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 a specialist offers API in an individual 
security, then the specialist must offer it to all customers and all 
eligible market orders in that security. Participation in the API 
program and PACE is voluntary.
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    \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 on a minus or zero-minus 
tick.\7\ The Exchange has proposed to amend Supplementary Material .07 
to Phlx Rule 229 to modify the Exchange's API program to allow 
specialists to choose to improve buy orders in securities that are 
exempted from or otherwise not subject to the ``tick'' requirements of 
the Short Sale Rule.\8\
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    \7\ See Supplementary Material .07(c)(i)(A) to Phlx Rule 229.
    \8\ 17 CFR 240.10a-1.
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III. Discussion

    After careful review, 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.\9\ 
In particular, the Commission finds that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\10\ which requires, among 
other things, that the rules of an exchange be designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market, and to protect investors and 
the public interest. The Commission believes that expanding the types 
of securities that may receive API to include those securities that are 
not subject to the ``tick'' requirements of the Short Sale Rule should 
allow customers to receive more opportunities for price improvement.
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    \9\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange has stated that it will issue a regulatory circular 
informing its members which securities are currently exempt from the 
``tick'' requirements of the Short Sale Rule and thus available for API 
under the rule change. At this time, securities that trade on the 
Exchange that the Commission has exempted from the ``tick'' 
requirements of the Short Sale Rule include Exchange-Traded Funds 
(``ETFs'')\11\ and certain Trust Issued Receipts (``TIRs'').\12\
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    \11\ See, e.g., letter from James A. Brigagliano, Assistant 
Director, Division of Market Regulation (``Division''), Commission, 
to Claire P. McGrath, Vice President, Amex, dated August 17, 
2001(``Amex Letter''); letter from Nancy J. Sanow, Assistant 
Director, Division, Commission, to James F. Duffy, General Counsel, 
Amex, dated January 22, 1993 (regarding SPDRs listed on the Amex); 
letter from James A. Brigagliano, Assistant Director, Division, 
Commission, to James F. Duffy, General Counsel, Amex, dated March 3, 
1999 (regarding QQQs listed on the Amex).
    \12\ See letter from James A. Brigagliano, Assistant Director, 
Division, Commission, to Janet L. Fisher, Cleary, Gottlieb, Steen & 
Hamilton, dated March 19, 2002 (regarding the Biotech Basket 
Opportunity Exchangeable Securities series (``BOXES'') traded on the 
Amex and Phlx). In order to be exempt from the Short Sale Rule, a 
TIR must meet certain size, concentration, and ADTV criteria.
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IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and rules 
and regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-Phlx-2003-25) is approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-14566 Filed 6-9-03; 8:45 am]
BILLING CODE 8010-01-P