[Federal Register Volume 68, Number 158 (Friday, August 15, 2003)]
[Notices]
[Pages 48978-48980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20819]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48310; File No. SR-Phlx-2002-85]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, and Amendment No. 1 Thereto, by the Philadelphia Stock 
Exchange, Inc. Relating to the Definition of a Wheel Assignment Area

August 8, 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 December 20, 2002, 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 the Exchange. The Phlx 
submitted Amendment No. 1 to the proposed rule change on July 28, 
2003.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Richard S. Rudolph, Director and Counsel, Phlx, 
to Nancy Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated July 25, 2003 (``Amendment No. 
1''). In Amendment No. 1, the Phlx amended the proposed rule change 
by clarifying the proposed definition of a ``Wheel Assignment Area'' 
set forth in paragraph (c)(iii) of OFPA F-24, AUTO-X Contra-Party 
Participation (The Wheel). The substance of Amendment No. 1 is 
incorporated into the description of the proposed rule change in 
Section II.A. below, and the proposed rule text set forth herein 
reflects the changes made in Amendment No. 1.
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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 Option Floor Procedure Advice (``OFPA'') 
F-24, AUTO-X Contra-Party Participation (The Wheel), to redefine a 
``Wheel Assignment Area,'' based on the current configuration of the 
Exchange Options Floor. The text of the proposed rule change is set 
forth below. Proposed new language is in italics. Proposed deletions 
are in brackets.
* * * * *
F-24 AUTO-X Contra-Party Participation (The Wheel)
    (a)-(b) No change.
    (c) Participation Requirements and Sign-on/off--Specialists on the 
Options Floor are required to participate on the Wheel in assigned 
issues in accordance with paragraph (e) of this Advice.
    (i) An ROT[s] may elect to participate on the Wheel for any or all 
[issues] options which such ROT [they] maintains an ROT assignment, as 
long as such [those listed] options are located within the Wheel 
Assignment Area (as defined below) for the crowd in which such ROT 
participates, [within two contiguous quarter turrets of each other] and 
the ROT is actively making markets in the specific [issues] options 
traded within such Wheel Assignment Area.
    (ii) No two associated or dually affiliated ROTs may be on the 
Wheel for the same option at the same time. Regardless of [an ROT's] 
the total number of options assigned to an ROT [issues], an ROT may 
only sign-on the Wheel in one Wheel [a]Assignment [a]Area at any given 
time.
    (iii) For [the] purposes of this Advice, a Wheel [a]Assignment 
[a]Area is [each area on the trading floor constituted by two 
contiguous quarter turrets] a location on the trading floor where an 
ROT: (1) Is actively making markets by quoting continuous, 2-sided 
markets in compliance with Advice B-1 and Rule 1014; (2) can hear and 
ascertain the markets that are being made by the specialist and crowd; 
(3) is deemed to be quoting the disseminated markets being made by the 
specialist in accordance

[[Page 48979]]

with Rule 1080.01(c); and (4) can be heard by the specialist and crowd. 
[However, t]The Options Committee may extend the number of options to 
be included in a Wheel [a]Assignment [a]Area on a case-by-case basis, 
taking into account the activity and trading crowd size in the [those 
options] Wheel Assignment Area(s) to be extended [as well as the 
intervening posts, if it is determined that the specialist and all 
Wheel participants on all Wheels agree that an ROT can be actively 
making markets in that particular situation and can thus be considered 
presenting such Wheel issues, until either specialist or any such Wheel 
participant no longer agree that the circumstances warrant an 
extension].
    (iv) In order to be placed on the Wheel for an entire trade day, 
the respective ROT must sign-on, in person on the trading floor for 
that listed option. Although ROTs may sign-on in individual listed 
options, a sign-off by an ROT is effective for all options for which 
the ROT is on the Wheel. Sign-offs shall become effective immediately 
upon being processed for deletion in the computer system.
    ([iii]v) If an ROT who is signed-on the Wheel is away from the 
Wheel [a]Assignment [a]Area for more than a brief interval, a Floor 
Official shall:
    (A) Remove the ROT from [any]all Wheel participation for the 
remainder of the trading day; and
    (B) issue a fine pursuant to the fine schedule below.
    If [such] an ROT is assigned a Wheel trade while away from the 
Wheel [a]Assignment [a]Area for more than a brief interval, that ROT is 
responsible for all [trades]contracts assigned to his/her ROT account 
until the sign-off is processed.


Fine Schedule (Implemented on a two-year running calendar basis)
 
F-24 (c) ([iii]v):
  1st Occurrence..........................  $250.00
  2nd Occurrence..........................  $500.00
  3rd Occurrence..........................  $1,000.00
  4th Occurrence and thereafter...........  Sanction is discretionary
                                             with Business Conduct
                                             Committee
 (d)-(f) No change.
 
Fine Schedule
 
 F-24 Fine not applicable, except paragraph (c)([iii]v). Matters subject
 to review by the Business Conduct Committee.
 

* * * * *

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 proposed rule change is to update the definition 
of a ``Wheel Assignment Area'' to be consistent with the current 
physical configuration of the Options Floor. Due to changes in the 
physical layout of the Options Floor (as explained below), not only is 
the ``two contiguous quarter turret'' standard no longer useful, but 
the variations in layout and post location on the Options Floor are 
such that the Exchange believes a standard based on the activities of 
Registered Options Traders (``ROTs''), rather than a physical 
description of a ``Wheel Assignment Area,'' is now more appropriate.
    Currently, OFPA F-24 provides that ROTs may elect to participate on 
the Wheel \4\ for any or all issues in which they maintain an ROT 
assignment, as long as those listed options are located within two 
contiguous ``quarter turrets'' of each other and the ROT is actively 
making markets in the specific issues.
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    \4\ The ``Wheel'' is a feature of AUTOM that provides an 
automated mechanism for assigning specialists and ROTs signed on the 
Wheel for a given listed option, on a rotating basis, as contra-side 
participants to trades executed via AUTO-X. See Exchange Rule 
1080(g). 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.
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    The Exchange's Options Floor has undergone many physical changes 
since the adoption of the current definition of ``Wheel assignment 
area.''\5\ Specifically, the Options Floor no longer has any ``quarter 
turrets.'' The Options Floor trading posts are now linear, and in some 
instances extend continuously over the entire length of a given 
specialist post, encompassing a relatively large number of options in a 
relatively large physical area.
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    \5\ The Exchange previously defined a ``Wheel assignment area'' 
as two contiguous quarter turrets. See Securities Exchange Act 
Release No. 35033 (November 30, 1994), 59 FR 63152 (December 7, 
1994) (SR-Phlx-94-32). A quarter turret was one section of a four-
sided, diamond-shaped trading post, which no longer exists on the 
Exchange's Options Floor.
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    In order to conform the Exchange's rules with the current physical 
configuration of the Options Floor, the proposed rule change amends the 
text of OFPA F-24 to include references to the proposed defined term 
``Wheel Assignment Area'' throughout. The proposal defines a ``Wheel 
Assignment Area'' as a location on the trading floor where an ROT: (1) 
Is actively making markets by quoting continuous, 2-sided markets in 
compliance with Advice B-1 and Rule 1014; (2) can hear and ascertain 
the markets that are being made by the specialist and crowd; (3) is 
deemed to be quoting the disseminated markets being made by the 
specialist in accordance with Rule 1080.01(c); and (4) can be heard by 
the specialist and crowd.\6\
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    \6\ See Amendment No. 1, supra n. 3.
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    As stated above, the proposed definition of ``Wheel Assignment 
Area'' is focused on the activities of individual ROTs, and not on the 
actual physical area in which ROTs are present. The requirements to 
actively make markets (making continuous two-sided markets in all 
issues assigned to such ROT), to hear and be heard, and to be deemed by 
the Exchange to be quoting the disseminated markets being made by the 
specialist in accordance with Rule 1080.01(c) \7\ are central to an 
ROT's participation in a particular crowd.
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    \7\ Phlx Rule 1080.01(c) provides, in relevant part: ``[t]he 
disseminated market * * * is deemed to represent the quotations of 
all ROTs in that option unless an ROT has expressly indicated 
otherwise in a clear and audible manner. * * * ''
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    The proposal contemplates that issues may be raised on the Options 
Floor as to whether a particular ROT is eligible to participate in a 
Wheel Assignment Area based on the above four criteria. In order to 
account for this, and to address possible disputes, the proposal would 
continue to provide that the Options Committee \8\ may extend the 
number of options to be included in a Wheel Assignment Area on a case-
by-case basis. Under the proposal, the Options Committee could now take 
into account the activity and trading crowd size in the Wheel 
Assignment Area(s) to be extended. In such a situation, the Options 
Committee would have the authority to determine if the Wheel Assignment 
Area should be extended to

[[Page 48980]]

include such an ROT. Because the Exchange believes it would be 
cumbersome and impractical for the Options Committee to meet and vote 
to approve the extension of a Wheel Assignment Area each time the issue 
arises on the Options Floor, the Options Committee has delegated its 
authority to approve such changes to two Exchange Floor Officials, who 
would indicate their approval by signing the appropriate form and 
submitting the form to Market Surveillance.\9\
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    \8\ The Options Committee has general supervision of the 
dealings of members on the options floor. See Exchange By-Law 
Article X, Section 10-19.
    \9\ Exchange By-Law Article X, Section 10-3(a) provides that 
each Standing Committee of the Exchange (the Options Committee is a 
Standing Committee) shall make such regulations for its government 
as it shall deem proper. By-Law Article X, Section 10-3(b) provides 
that each Standing Committee may appoint subcommittees as it may 
deem necessary for the efficient discharge of its duties. Each 
Options Committee member is a Floor Official, as is each member of 
the Options Subcommittee on Rules and Rulings. For purposes of 
efficiency, the Options Committee has delegated authority to these 
Floor Officials to discharge its on-floor duties of general 
supervision of the dealings of members on the options floor.
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    The proposal also includes a provision that would enable a Floor 
Official to remove an ROT from all Wheel participation for the 
remainder of the trading day, and issue a fine pursuant to the fine 
schedule in OFPA F-24, if an ROT who is signed-on the Wheel is away 
from the Wheel Assignment Area for more than a brief interval. The 
Exchange believes that this provision substantially reduces the 
likelihood that an ROT would sign onto the Wheel and then leave the 
crowd, or even the trading floor, thereby receiving the benefit of 
participating as contra-side to automatically executed trades, and 
receiving favorable on-floor margin treatment despite the fact that 
such an ROT may not even be present in the crowd or on the floor.
    Other technical amendments, included to make the OFPA consistent 
throughout, are also proposed.
2. Statutory Basis
    For these reasons, the Exchange believes that the proposed rule 
change is consistent with Section 6(b) of the Act \10\ in general, and 
furthers the objectives of Section 6(b)(5) \11\ in particular, in that 
it is designed to promote just and equitable principles of trade, 
remove impediments to and perfect the mechanism of a free and open 
market and protect investors and the public interest by defining 
``Wheel Assignment Area'' to be consistent with the current physical 
configuration of the Exchange's Options Floor.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 self-regulatory organization consents, the Commission will:
    A. By order approve the 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 at 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-2002-85 and 
should be submitted by September 5, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-20819 Filed 8-14-03; 8:45 am]
BILLING CODE 8010-01-P