[Federal Register Volume 68, Number 206 (Friday, October 24, 2003)]
[Notices]
[Pages 61029-61033]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-26883]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48663; File No. SR-PHLX-2003-66]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 by the Philadelphia Stock Exchange, 
Inc., Relating to the Listing and Trading of Options on the Nasdaq 
Composite Index[reg]

October 20, 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 September 29, 2003, the Philadelphia Stock Exchange, Inc. (``PHLX'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the PHLX. 
The PHLX filed Amendment Nos. 1 and 2 to the proposal on October 17, 
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\ See letter from Mark I. Salvacion, Director and Counsel, 
PHLX, to Kelly Riley, Senior Special Counsel, Division of Market 
Regulation (``Division''), Commission, dated October 17, 2003 
(``Amendment No. 1''); and letter from Mark I. Salvacion, Director 
and Counsel, PHLX, to Yvonne Fraticelli, Special Counsel, Division, 
Commission, dated October 17, 2003 (``Amendment No. 2''). Amendment 
No. 1 revises the position and exercise limits for the proposed 
options. Amendment No. 2 proposes to list mini FLEX options on the 
Nasdaq Composite Index.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PHLX proposes to list and trade cash-settled, European-style 
options on the Nasdaq Composite Index[reg] (the ``Nasdaq Composite 
Index'' or ``Index''), a broad-based, market capitalization-weighted, 
A.M.-settled index comprised of approximately 3,400 stocks listed and 
traded on The Nasdaq Stock Market, Inc. (``Nasdaq''). In addition to 
trading full-size options on the Index (``Full-Size Index Options''), 
the PHLX proposes to trade mini Index options that are 1/10th the size 
of full-size Index options (``Mini Index Options''), Flexible Exchange 
Index (``FLEX[reg]'') options on the Index (``FLEX Index Options''), 
and mini-FLEX Index Options (``Mini FLEX Index Options'') (the Full-
Size Index Options, Mini Index Options, FLEX Index Options, and Mini 
FLEX Index Options may be referred to, collectively, as the ``Index 
Options''). The PHLX will trade the Index Options pursuant to current 
PHLX rules governing the trading of index options.\4\ The PHLX proposes 
to amend PHLX Rules 1001A, ``Position Limits,'' and 1079, ``FLEX Index 
and Equity Options,'' to establish position limits for the proposed 
Index Options. The text of the proposed rule change appears below. 
Proposed additions are italicized.
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    \4\ See, particularly, PHLX Rules 1000A through 1102A (Rules 
Applicable to Trading of Options on Indices) and, generally, PHLX 
Rules 1000 through 1090 (Options Rules of the PHLX).
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Position Limits
    Rule 1001A. (a) Position limits for options on market indexes shall 
be as follows, except certain positions must be aggregated in 
accordance with paragraph (d) below:
    (i)--(ii) No change.
    (iii) Respecting the Nasdaq Composite Index, (1) 50,000 contracts 
total for full-size options, with 30,000 contracts in the nearest 
expiration month, and (2) 500,000 contracts total for mini size 
options, with 300,000 contracts total in the nearest expiration month.
    (b)--(d) No change.
    (e) Aggregation--Full value, reduced value, long term and quarterly 
expiring options based on the same index shall be aggregated.
    (i)--(ii) No change.
    (iii) For aggregation purposes, one full-size Nasdaq Composite 
Index option contract is the equivalent of 10 mini size Nasdaq 
Composite Index option contracts.
FLEX Index and Equity Options
    Rule 1079. A Requesting Member shall obtain quotes and execute 
trades in certain non-listed FLEX options at the specialist post of the 
non-FLEX option on the Exchange. The term ``FLEX option'' means a FLEX 
option contract that is traded subject to this Rule. Although FLEX 
options are generally subject to the rules in this section, to the 
extent that the provisions of this Rule are inconsistent with other 
applicable Exchange rules, this Rule takes precedence with respect to 
FLEX options.
    (a)--(c) No change.
    (d) Position Limits.
    (1) FLEX index options shall be subject to a separate position 
limit of 200,000 contracts on the same side of the market respecting 
market index options (TPX, VLE and XOC); 50,000 contracts on the same 
side of the market, with 30,000 contracts on the same side of the 
market in the nearest expiration month, respecting full-size Nasdaq 
Composite Index[reg] Options; 500,000 contracts on the same side of the 
market, with 300,000 contracts on the same side of the market in the 
nearest expiration month respecting mini-size Nasdaq Composite 
Index[reg] Options; 36,000, 48,000, or 60,000 contracts respecting 
industry index options, depending on the position limit tier determined 
pursuant to Rule 1001A(b)(i). However, positions in P.M.-settled FLEX 
index options shall be aggregated with positions in quarterly expiring 
options listed pursuant to Rule 1101A(b)(iv) on the same underlying 
index, if the FLEX index option expires at the close of trading on or 
within two business days of the last day of trading in each calendar 
quarter. Positions in FLEX index options shall otherwise not be taken 
into account when calculating position limits for non-FLEX index 
options.
    (2) No change.
    (e)-(f) 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 PHLX 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

[[Page 61030]]

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 list for trading 
cash-settled, European-style Full-Size Index Options, Mini Index 
Options, FLEX Index Options, and Mini FLEX Index Options on the Nasdaq 
Composite Index. The PHLX believes that the Index Options should 
provide an important hedging vehicle for traders who engage in trading 
securities that comprise the Index. The following is a more detailed 
description of the Index and the proposed Index Options.
Composition of the Index
    The Index is a capitalization-weighted index designed to measure 
the performance of stocks listed and traded on Nasdaq. The Index 
includes both Nasdaq National Market issues and Nasdaq SmallCap Market 
issues. As described more fully below, the Index is comprised of all of 
the securities traded on Nasdaq that are not otherwise excluded on the 
basis of their security type.
    The inclusion of a Nasdaq National Market security or Nasdaq 
SmallCap Market security in the Index is determined by the type of 
security. Issues included in the Index include domestic or foreign 
common stocks, ordinary shares, American Depositary Receipts, shares of 
beneficial interest, real estate investment trust securities, and 
tracking stocks \5\ (collectively, ``Common-Type Securities''). Issues 
not included in the Index are convertible debentures, preferred stocks, 
rights, warrants, units, closed-end funds, exchange-traded funds 
(``ETFs''), and other derivative securities.
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    \5\ Tracking stocks are publicly traded securities issued by a 
parent company to monitor or ``track'' the underlying performance 
and/or earnings potential of a subsidiary. Tracking stocks allow the 
parent company to maintain control over the tracked unit while 
permitting investors to value the unit as a separate entity.
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    Index-eligible securities are added to the Index on the business 
day immediately after a last sale is established. If at any time a 
component security is no longer traded on Nasdaq or no longer meets the 
security-type eligibility criteria, the security is removed from the 
Index. The Index is updated on a daily basis and there is no periodic 
rebalancing of Index components.
    As of July 31, 2003, the capitalization of the Index's 3,408 
components ranged from $284 billion to $55,000,\6\ and the market 
capitalization of the Index totaled $2.6 trillion. The largest Index 
component accounted for 11.12% of the weight of the Index and the 
smallest component accounted for less than 1% of the weight of the 
Index. The median capitalization of the Index's components was $110 
million.
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    \6\ For companies that list American Depositary Shares, these 
values represent only the value of the outstanding American 
Depositary Shares and not the global market capitalization of the 
issuer, which is the basis for listing on Nasdaq. Nasdaq's minimum 
listing and maintenance standard for global market capitalization is 
$50 million.
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    A total of ten industry groups are represented in the Index. The 
top five industry groups and their weights in the Index are: (1) 
Computer software and hardware, 52%; (2) healthcare, 14%; (3) 
financials, 11%; (4) consumer discretionary, 8%; and (5) 
telecommunications and media, 6%. During the period from January 1, 
2003, through July 31, 2003, the average daily trading volume for the 
component stocks representing 95% of the weight of the Index was 
850,000 shares, and the average daily volume for all of the Index's 
component stocks was 485,000 shares. The top 100 stocks accounted for 
64% of the weight of the Index and the bottom 100 stocks accounted for 
0.01% of the weight of the Index. The prices of the Index's components 
ranged from $0.11 per share to $780.00 per share. The average share 
price was $14.15. The shares outstanding for each of the Index's 
component stocks ranged from 10,000 shares to 11 billion shares, with 
an average of 43 million shares outstanding. Options-eligible stocks 
represented 95% of the weight of the Index.
    The Index includes most of the stocks listed and traded on the 
Nasdaq SmallCap Market, except those issues excluded based on security 
type. Nasdaq SmallCap Market stocks are ``eligible securities'' within 
the meaning of the Joint Self-Regulatory Organization Plan Governing 
the Collection, Consolidation and Dissemination of Quotation and 
Transaction Information for Nasdaq-Listed Securities Traded on 
Exchanges on an Unlisted Trading Privilege Basis (``Nasdaq UTP Plan'' 
or ``Plan'').\7\ Because Nasdaq SmallCap Market securities are 
``reported securities'' for purposes of Rule 11Aa3-1 under the Act,\8\ 
the PHLX and Nasdaq believe that they may be included in the Index for 
purposes of index option trading.\9\ According to the PHLX, Nasdaq 
SmallCap Market securities are subject to stronger quantitative listing 
standards, stronger governance criteria, and stronger initial listing 
standards than those that were in place prior to 1997, and Nasdaq 
SmallCap Market securities therefore should qualify as forming part of 
the basis for cash-settled Index Options. Further, the PHLX maintains 
that the listing requirements of the Nasdaq SmallCap Market are more 
stringent than those of the Amex. The PHLX also notes that Nasdaq 
SmallCap Market stocks comprise only 1.3% of the capitalization of the 
Index.
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    \7\ The Nasdaq UTP Plan initially was approved in 1990. See 
Securities Exchange Act Release No. 28146 (June 26, 1990), 55 FR 
27919 (July 6, 1990). The Plan was amended in 2001 to include Nasdaq 
SmallCap Market stocks. See Securities Exchange Act Release 45081 
(November 19, 2001), 66 FR 49273 (November 27, 2001). The Plan 
governs the collection, processing, and dissemination on a 
consolidated basis of quotation and last sale information for each 
of its participants (the Cincinnati Stock Exchange, Inc., the 
National Association of Securities Dealers, Inc., the American Stock 
Exchange LLC (``Amex''), the Boston Stock Exchange, Inc., the 
Chicago Stock Exchange, Inc., the Pacific Exchange, Inc., and the 
PHLX). The consolidated information informs investors of the current 
quotation and recent trade prices of Nasdaq securities. It enables 
investors to ascertain from one data source the current prices in 
all the markets trading Nasdaq securities. The Plan serves as the 
required transaction reporting plan for its participants, which is a 
prerequisite for their trading Nasdaq securities.
    \8\ See 17 CFR 240.11Aa3-1.
    \9\ A ``reported security'' is defined in Rule 11Aa3-1(a)(4) 
under the Act as ``any listed equity security or Nasdaq security for 
which transaction reports are required to be made on a real-time 
basis pursuant to an effective transaction reporting plan.'' An 
``effective transaction reporting plan'' is defined in Rule 11Aa3-
1(a)(3) under the Act as a transaction reporting plan approved by 
the Commission under Rule 11Aa3-1 under the Act. A ``transaction 
reporting plan'' is defined in Rule 11Aa3-1(a)(2) under the Act as 
``any plan for collecting, processing, making available or 
disseminating transaction reports with respect to transactions in 
reported securities filed with the Commission pursuant to, and 
meeting the requirements of, this section.'' With the extension of 
the Nasdaq UTP Plan to include Nasdaq SmallCap Market securities, 
Nasdaq SmallCap Market securities became securities reported 
pursuant to an effective transaction reporting plan approved by the 
Commission.
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Calculation of the Index
    As noted above, the Index is a market capitalization-weighted index 
comprised of all Common-Type Securities listed on Nasdaq. The value of 
the Index equals the aggregate value of the Total Shares Outstanding 
(``TSO'') of each Index component security multiplied by each 
security's respective price on Nasdaq, divided by the Adjusted Base 
Period Market Value (``ABPMV''), and multiplied by the Base Value. The 
ABPMV scales the Index's aggregate value (otherwise in trillions)

[[Page 61031]]

to a lower order of magnitude, which is more desirable for Index 
reporting purposes.
    The Index Value calculation can be summarized as follows: 
(Aggregate Market Value/ABPMV) x Base Value.
    The Index began on February 5, 1971, at a Base Value of 100.00.
    Each Index component's influence on the value of the Index is 
directly proportional to the value of its Index share weight.
    The Index is disseminated every 15 seconds through the Nasdaq Index 
Dissemination ServicesSM (``NIDS'') during normal Nasdaq 
trading hours (9:30 A.M. to 4:00 P.M. ET). NIDS is a Nasdaq data feed 
carrying intra-day index values and valuation data for ETFs listed on 
Nasdaq. The NIDS data feed is carried by all major market data vendors.
    The Index is calculated using Nasdaq prices (not consolidated) 
during the day and the Nasdaq Official Closing Price (``NOCP'') for the 
close.\10\ The NOCP is based on the price of the last unmodified trade 
reported to Nasdaq's Automated Confirmation Transaction 
ServiceSM at or before 4:00:02 P.M. ET (the ``Predicate 
Trade''). Nasdaq systems will ``normalize'' the price of the Predicate 
Trade by comparing it to Nasdaq's best bid and offer prices (``BBO'') 
(i.e., the best prices displayed by all SuperMontage participants) at 
the time the Predicate Trade was reported, or by comparing it to the 
Nasdaq BBO at 4:00:00 P.M. ET for trades reported after that time (the 
``Predicate BBO''). Subject to review by Nasdaq Market Watch, if the 
price of the Predicate Trade falls at or within the Predicate BBO, that 
price becomes the NOCP. If the price of the Predicate Trade falls 
outside the Predicate BBO, Nasdaq will adjust it up to the Predicate 
BBO bid if it is below the bid price or adjust it down to the Predicate 
BBO ask if it is above the ask price. The NOCP methodology will only 
impact the individual market close for the Nasdaq; it will not impact 
the consolidated close or individual market closes of the UTP 
exchanges. The PHLX notes that the NOCP should not be confused with the 
consolidated last sale price, which is comprised of the final last sale 
eligible trade report submitted to the securities information processor 
during the regular trading session by any market center, including 
Nasdaq.
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    \10\ See Securities Exchange Act Release No. 47517 (March 18, 
2003), 68 FR 14446 (March 25, 2003) (File No. SR-NASD-2002-158) 
(approving the establishment of the NOCP).
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    Although the Index is calculated until 4:00 P.M. ET, the Index's 
closing value may change up until 5:15 P.M. ET due to changes or 
corrections to the last sale in the Index's component securities.
Maintenance
    Nasdaq will maintain the Index, and the PHLX represents that it 
will not influence any Nasdaq decisions concerning maintenance of the 
Index.
    Changes in the number of shares outstanding driven by corporate 
events such as stock dividends, splits, and certain spin-offs and 
rights issuances will be adjusted on the ex-date. A change in the TSO 
arising from other corporate actions including secondary offerings, 
stock repurchases, conversions, and acquisitions is ordinarily made to 
the Index on the evening prior to the effective date of the corporate 
action or as soon as practicable thereafter. Changes are made after the 
market close and are reflected on http://www.nasdaqtrader.com/asp/nasdaqcomp.asp the following morning.
    Index-eligible security additions to Nasdaq (either an initial 
public offering or a seasoned security) will be included in the Index 
once there is a Nasdaq last sale established (usually day two of 
listing on Nasdaq). As stated above, if at any time a component 
security is no longer traded on Nasdaq or no longer meets the 
eligibility criteria, the security is removed from the Index.
    Ordinarily, whenever there is a change in a component security's 
TSO, a component addition or deletion, or changes due to certain spin-
offs and rights offerings, Nasdaq adjusts the ABPMV to ensure that 
there is no discontinuity in the value of the Index.
    The ABPMV can be determined as follows: (Market Value after 
Adjustments/Market Value before Adjustments) x ABPMV before 
Adjustments.
    Although the PHLX is not involved in the maintenance of the Index, 
it has represented that it will monitor the Index on a semi-annual 
basis and will notify Commission staff if and when: (1) 10% of the 
capitalization of the Index comprises securities with a market 
capitalization of less than $100 million; or (2) when 10% of the 
capitalization of the Index is made up of components with an average 
daily trading volume of less than 10,000 shares over the previous six 
months. As of July 31, 2003, 2.56% of the capitalization of the Index 
was made up of securities with a market capitalization of less than 
$100 million, and 2.19% of the capitalization of the Index was made up 
of components with an average daily trading volume of less than 10,000 
shares over the previous six months.
Index Option Trading
    As noted above, the Exchange proposes to trade Full-Size Index 
Options, Mini Index Options, FLEX Index Options, and Mini FLEX Index 
Options. The contract multiplier for Full-Size Index Options will be 
$100 and the contract multiplier for Mini Index Options will be $10. 
Each contract will trade under separate ticker symbols and will not be 
fungible with the other. The size of the underlying Index will remain 
the same for each contract (i.e., Mini Index Options will not overlie a 
separate Index calculation reduced by 1/10th), and therefore the 
Exchange will list similar strikes for each and the settlement value 
will be uniform for each.
    According to the PHLX, the proposed Mini FLEX Index Options are 
designed to provide small institutional and high net-worth customers 
with the ability to tailor their notional value exposure with a greater 
degree of precision than would be available with Full-Size Index 
Options. For example, the PHLX notes that the minimum opening 
transaction for FLEX index options is $10 million. At an index level of 
1900 points, this would represent 53 full-size FLEX Index options and 
527 Mini-FLEX index options. For the full-size FLEX index option, each 
additional contract would increase the notional exposure by $190,000, 
which is nearly 2% of the notional value of the opening position, while 
each additional Mini-FLEX index option contract increases the notional 
exposure by $19,000. The PHLX notes that for customers who have 
specific investment objectives with acceptable margins of error of less 
than $190,000, or 2%, the Mini-FLEX index option would represent the 
preferred product.
    The Exchange will list strike prices in $5.00 intervals for Index 
Options. The minimum tick size for series quoted below $3.00 (i.e., 
$300 in premium after factoring in the $100 contract multiplier for 
Full-Size Index Options and $30 in premium after factoring in the $10 
contract multiplier for Mini Index Options) will be $.05 (i.e., $5.00 
for Full-Size Index Options, and $.50 for Mini Index Options), and for 
series quoted above $3.00 the minimum tick size will be $.10 (i.e., 
$10.00 for Full-Size Index Options and $1.00 for Mini Index Options). 
The trading hours for Index Options will be from 9:30 A.M. to 4:15 P.M. 
ET.
    The PHLX represents that the Options Price Reporting Authority 
(``OPRA'') has informed the Exchange that trading in Index Options will 
have a minimal

[[Page 61032]]

impact on OPRA's current quoting capacity.\11\
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    \11\ See Letter from Joseph P. Corrigan, Executive Director, 
OPRA, to Matthew Holm, Director, PHLX, dated September 16, 2003.
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Settlement of Index Options
    The proposed Full-Size Index Options and Mini Index Options will 
expire on the Saturday following the third Friday of the expiration 
month.\12\ Trading in the expiring contract month will normally cease 
at 4:15 P.M. ET on the immediately preceding Thursday. Nasdaq will 
calculate the exercise settlement value of the Index at option 
expiration based on the volume-weighted opening price (``Nasdaq VWOP'') 
of the component securities in the first four minutes of trading (the 
``Extraction Period'') on the business day prior to expiration, which 
will normally be a Friday. Each Index component will have a trade 
extraction history independently maintained beginning with the receipt 
of the first day's trade in that issue and continuing for four 
continuous minutes. Nasdaq will record and reflect trade adjustments 
during the Extraction Period for each component until the four-minute 
window for the last component stock closes or 10:30 A.M., whichever is 
sooner. Nasdaq will then calculate the Nasdaq VWOP for each security 
based on the extracted trades and aggregate the Nasdaq VWOPs of the 
Index's components to calculate the Index settlement value. If a stock 
fails to open for trading, the last available price on the stock will 
be used to calculate the Index, as is done for currently listed 
indexes. A stock will be deemed to have failed to open for trading when 
it does not open for trading prior to 10:30 A.M. on such trading day.
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    \12\ Under PHLX Rule 1079(a)(6), a FLEX option on the Index may 
not expire on any day that falls on or within two business days 
prior to or subsequent to an expiration day for a non-FLEX option on 
the Index.
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Surveillance
    To monitor trading in Index Options, the Exchange will use the same 
surveillance procedures it uses currently for each of the Exchange's 
sector index options.\13\ These procedures include complete access to 
trading activity in the underlying securities. Movements in price and 
volume are used as a primary indicator in detecting market 
manipulations such as insider trading activity within the underlying 
component issues of an index. The PHLX notes that underlying securities 
are used to determine trading rotations, halts or re-openings \14\ and 
to monitor for price and volume movements in the underlying component 
issues.
    The Intermarket Surveillance Group (``ISG'') Agreement, dated July 
14, 1983, as amended, will be applicable to the trading of Index 
Options. According to the PHLX, as of July 31, 2003, 315 securities, 
representing 3.27% of the capitalization of the Index and 9.24% of the 
number of components in the Index, are incorporated outside the United 
States. Of those 315 securities, only 125, or 0.64% of the 
capitalization of the Index and 3.67% of the number of components in 
the Index, are incorporated in countries whose domestic equity exchange 
is not a member of ISG.\15\
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    \13\ See, e.g., PHLX rules pertaining to: (1) affirmative 
quoting obligations (PHLX Rule 1014, ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders''); (2) 
priority and parity (PHLX Rule 1014); (3) execution guarantees (PHLX 
Rule 1015, ``Execution Guarantees''); (4) firm quotations (PHLX Rule 
1082, ``Firm Quotations''); and (5) excessive dealing (PHLX Rule 
1021, ``Excessive Dealing in Options'').
    \14\ See PHLX Rule 1047A, ``Trading Rotations, Halts or 
Reopenings.''
    \15\ See Securities Exchange Act Release No. 34157 (June 3, 
1994), 59 FR 30062 (June 10, 1994) (order approving File Nos. SR-
Amex-92-35; SR-CBOE-93-59; SR-NYSE-94-17; SR-PSE-94-07; and SR-PHLX-
94-10) (establishing streamlined procedures for the listing of 
options on any narrow-based index that meets specified criteria, 
including, among other criteria, the requirement that non-U.S. 
component securities that are not subject to comprehensive 
surveillance agreements account for no more than 20% of the weight 
of the index).
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Position Limits
    The PHLX proposes to amend Phlx Rule 1001A to establish position 
limits of 50,000 contracts for Full-Size Index Options, with 30,000 
contracts in the nearest expiration month, and 500,000 contracts for 
Mini Index Options on either side of the market, with 300,000 contracts 
total in the nearest expiration month. Exercise limits will be set at 
the same level as position limits. The proposed amendment to PHLX Rule 
1001A will require that the position limits in Full-Size Index Options 
and Mini Index Options be aggregated for the purpose of determining 
compliance with position and exercise limits. The PHLX proposes to 
establish the position limit of the index hedge exemption at 150,000 
contracts for Full-Size Index Options and 1,500,000 contracts for Mini 
Index Options. The Exchange proposes to amend PHLX Rule 1079 to 
establish a separate position limit of 50,000 contracts on the same 
side of the market for FLEX Index Options, with 30,000 contracts on the 
same side of the market in the nearest expiration month. For Mini FLEX 
Index Options, the PHLX proposes to establish a position limit of 
500,000 contracts on the same side of the market, with 300,000 
contracts on the same side of the market in the nearest expiration 
month.
(2) Basis
    The PHLX believes that the proposed rule change is consistent with 
Section 6(b)\16\ of the Act, in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\17\ in particular, in that it is designed 
to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts and practices, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism for a free and open market and a national market system, and 
to protect investors and the public interest.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 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

    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 Exchange 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.
    The Commission is considering granting accelerated approval of the 
proposed rule change at the end of a 15-day comment period.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Persons making written 
submissions should file six copies

[[Page 61033]]

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 number SR-PHLX-2003-66 and should be 
submitted by November 10, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-26883 Filed 10-23-03; 8:45 am]
BILLING CODE 8010-01-P