[Federal Register Volume 69, Number 60 (Monday, March 29, 2004)]
[Notices]
[Pages 16331-16333]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6893]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49456; File No. SR-Phlx-2004-19]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 by the 
Philadelphia Stock Exchange, Inc. Relating to the Execution of Market 
and Marketable Limit Orders in Certain Trust Shares and Trust Issued 
Receipts During a Locked Market

March 22, 2004.
    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 March 10, 2004, the Philadelphia Stock Exchange,

[[Page 16332]]

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. On March 19, 2004, the Phlx amended the proposal.\3\ The 
Exchange filed the proposed rule change under Section 19(b)(3)(A) of 
the Act,\4\ and Rule 19b-4(f)(6) \5\ thereunder, which renders the 
proposal effective upon filing with the Commission. 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 March 18, 2004 letter from Angela Saccomandi Dunn, 
Counsel, Phlx, to Nancy J. Sanow, Assistant Director, Division of 
Market Regulation, Commission and attachments (``Amendment No. 1''). 
Amendment No. 1 replaces and supersedes the original filing in its 
entirety.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6). The Phlx provided the Commission 
with written notice of its intention to file the proposed rule 
change on March 3, 2004. For purposes of calculating the 60-day 
abrogation period, the Commission considers the period to have 
commenced on March 19, 2004, the day the Phlx filed Amendment No. 1.
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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 Phlx Rule 229, Supplementary 
Material .05 and .10, to modify the Philadelphia Stock Exchange 
Automated Communication and Execution (``PACE'') System \6\ to provide 
for the automatic execution of eligible market and marketable limit 
orders in Trust Shares and Trust Issued Receipts, on a security-by-
security basis, received when the PACE Quote is locked.\7\ Such orders 
would be automatically executed at the PACE Quote. The text of the 
proposed rule change is below. Proposed additions are in italics.
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    \6\ PACE is the Exchange's automated order routing, delivery, 
execution and reporting system for equities.
    \7\ The PACE Quote is the best bid/ask quote among the American, 
Boston, Cincinnati, Chicago, New York, Pacific, or Philadelphia 
Stock Exchange, or the Intermarket Trading System/Computer Assisted 
Execution System (``ITS/CAES'') quote, as appropriate. See Phlx Rule 
229.
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Rule 229. Philadelphia Stock Exchange Automated Communication and 
Execution System (PACE)
    Supplementary Material: * * *
    .01-.04 No Change.
Execution of Market Orders
    .05 Public Order Exposure System--Subject to Supplementary Material 
Section .07, all round-lot market orders up to 500 shares and PRL 
market orders up to 599 shares will be stopped at the PACE Quote at the 
time of entry into the system (``Stop Price'') and be subject to a 
delay of up to 30 seconds from being executed in order to receive an 
opportunity for price improvement. If such market order is not executed 
within the 30 second window, the order will be automatically executed 
at the Stop Price. If the PACE Quote at the time of order entry into 
the system reflects a point spread (the difference between the best bid 
and offer) of $.05 or less for equities trading in decimals, pursuant 
to Rule 134 or 125, that order will be executed immediately without the 
30 second delay.
    Subject to these procedures, the specialist may voluntarily agree 
to execute round-lot market orders of a size greater than 500 shares 
and PRL market orders of a size greater than 599 shares upon entry into 
the system.\7\ Where the specialist has voluntarily agreed to 
automatically execute market orders greater than 599 shares and the 
market order size is greater than 599 shares, but less than or equal to 
the size of the PACE Quote, the order is automatically executable at 
the PACE Quote; if such order is greater than the size of the PACE 
Quote, the order shall receive an execution at the PACE Quote up to the 
size of the PACE Quote, either manually or automatically (once this 
feature is implemented) with the balance of the order receiving a 
professional execution, in accordance with Supplementary Material, 
.10(b) below; provided that the specialist may guarantee an automatic 
execution at the PACE Quote up to the entire size of such specialist's 
automatic execution guarantee (regardless of the size of the PACE 
Quote).
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    [\7\ See SR-Phlx-97-11.].
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    When the PACE Quote is locked, in a Trust Share or Trust Issued 
Receipt, automatically executable market orders entered after the 
opening will be automatically executed at the locked price, if the 
specialist determines to elect this feature for a particular security.
    .10(a) In the case of stocks for which the PACE quote bid is less 
than $1.00, the provisions of paragraph .10(b) shall apply.
    In the case of stocks for which the PACE quote bid is $1.00 or 
more:
    (i) Marketable Limit Orders--round-lot orders up to 500 shares and 
the round-lot portion of PRL limit orders up to 599 shares which are 
entered at the PACE Quote shall be executed at the PACE Quote. Such 
orders shall be executed automatically unless the member organization 
entering orders otherwise elects. Specialists may voluntarily agree to 
execute marketable limit orders greater than 599 shares. Where the 
specialist has voluntarily agreed to automatically execute marketable 
limit orders greater than 599 shares and the order size is greater than 
599 shares, but less than or equal to the size of the PACE Quote, the 
marketable limit order is automatically executable at the PACE Quote; 
if the order size is greater than 599 shares and greater than the size 
of the PACE Quote, the marketable limit order shall manually receive an 
execution at the PACE Quote up to the size of the PACE Quote, with the 
balance of the order receiving a professional execution, in accordance 
with Supplementary Material, .10(b) below; provided that the specialist 
may guarantee an automatic execution at the PACE Quote up to the entire 
size of such specialist's automatic execution guarantee.
    When the PACE Quote is locked, in a Trust Share or Trust Issued 
Receipt, automatically executable marketable limit orders entered after 
the opening will be automatically executed at the locked price, if the 
specialist determines to elect this feature for a particular security.
    Marketable limit orders may be eligible for automatic price 
improvement or manual double-up/double-down price protection pursuant 
to Supplementary Material .07(c) above.
    .10(a)(ii)-(iii) No Change.
    .10(b) and (c) No Change.
    .11-.22 No Change.
    .07-.09 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 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 increase the 
specialists' efficiency and turn-around time by allowing automatic 
executions during

[[Page 16333]]

locked markets in certain securities \8\ at the PACE Quote. Currently, 
during a locked market, market and marketable limit orders are not 
executed automatically, but rather, are handled manually by the 
specialist. This proposed rule change would increase the efficiency of 
order handling by eliminating the necessity to deal with orders 
manually.\9\
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    \8\ The Exchange will provide notice as to which Trust Shares 
and Trust Issued Receipts will be subject to the new automation 
feature. This notice will be provided initially when the selection 
occurs, and subsequently each time the specialist selects or 
deselects this feature.
    \9\ This proposed rule change is similar to Securities Exchange 
Act Release No. 48995 (December 24, 2003), 68 FR 75670 (December 31, 
2003) (SR-Amex-2003-102).
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    The proposed automatic procedure will enable PACE customers to 
automatically, without undue delay, receive prices that accurately 
reflect market conditions. For instance, an execution at the PACE Quote 
when it is locked reflects the current market price, notwithstanding 
that it is locked. The quality of the execution of these orders should 
be improved and enhanced, as execution time should be reduced while the 
orders continue to receive the best bid or offer.
    Additionally, an unusual footnote that appears in the text of the 
rule is being deleted.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \11\ in particular, in that it will 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 increasing automated order handling.
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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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \12\ and 
Rule 19b-4(f)(6) thereunder.\13\ At any time within 60 days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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. Comments 
may also be submitted electronically at the following e-mail address: 
[email protected]. All comment letters should refer to File No. SR-
Phlx-2004-19. This file number should be included on the subject line 
if e-mail is used. To help the Commission process and review comments 
more efficiently, comments should be sent in hardcopy or by e-mail but 
not by both methods. 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 Exchange. All 
submissions should refer to file number SR-Phlx-2004-19, and should be 
submitted by April 19, 2004.

    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. 04-6893 Filed 3-26-04; 8:45 am]
BILLING CODE 8010-01-P