[Federal Register Volume 69, Number 112 (Thursday, June 10, 2004)]
[Notices]
[Pages 32652-32653]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13087]



[[Page 32652]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49801; File No. SR-Phlx-2004-38]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. To Extend a Pilot Program Under Which it Lists Options 
on Selected Stocks Trading Below $20 at One-Point Intervals Until June 
5, 2005

June 3, 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 May 27, 2004, 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 and 
II below, which Items have been prepared by Phlx. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Phlx proposes to extend its pilot program under which it lists 
options on selected stocks trading below $20 at $1 strike price 
intervals (``$1 Pilot Program'') until June 5, 2005. The text of the 
proposed rule change is available at the Office of the Secretary, Phlx, 
and the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, 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 statements may be examined at the places specified in 
Item IV below. 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 extend the term of 
the $1 Pilot Program to June 5, 2005 so that Phlx can continue to list 
options at $1 strike price intervals within the parameters specified in 
Commentary .05 to Phlx Rule 1012.
    According to the Phlx, a large number of stocks have precipitously 
declined in price over the last three years and the number of options 
overlying this lowest tier of stocks has increased. On June 11, 2005, 
the Commission approved the $1 Pilot Program which allows Phlx to list 
strike prices for options at $1 intervals for securities trading under 
$20.\3\ Phlx proposes to extend the $1 Pilot Program until June 5, 
2005. The Phlx does not propose any changes to the $1 Pilot Program. 
Under the $1 Pilot Program, the Phlx can establish $1 strike price 
intervals on options classes overlying no more than five (5) individual 
stocks designated by the Phlx where the underlying stock closes below 
$20 on the primary market on the trading day before selection; the $1 
strike price is from $3 to $20; the $1 strike price is no more than $5 
from (i.e., $5 above or below) the closing price of the underlying 
stock on the preceding day; the $1 strike price will not be listed 
within $0.50 of an existing $2.50 strike price within the same series; 
and the $1 strike price will not be applied to LEAPS. Lastly, pursuant 
to the $1 Pilot Program, the Phlx can multiply list those option 
classes specifically designated to be listed at $1 strike price 
intervals by another options exchanges that has a similar $1 Pilot 
Program pursuant to its rules.
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    \3\ See Securities Exchange Release No. 48013 (June 11, 2003), 
68 FR 35933 (June 17, 2003) (Order approving File No. SR-Phlx-2002-
55).
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    In July 2003, the Phlx chose and listed five (5) option classes at 
$1 strike price intervals.\4\ Thereafter, the Phlx listed, on a 
multiple listed basis, options at $1 strike price intervals on classes 
that were listed by the other option exchanges pursuant to their $1 
Pilot Programs. The Phlx currently lists a total of twenty-two (22) 
option classes at $1 strike price intervals. The Phlx believes that its 
ability to list options at $1 strike price intervals pursuant to the $1 
Pilot Program has given investors the opportunity to more closely and 
effectively tailor their options investments to the price of the 
underlying stock, has allowed the Phlx to take advantage of competitive 
opportunities to list options at $1 strike prices, and, lastly, has 
stimulated price competition among the options exchanges in those 
options classes.
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    \4\ The Phlx chose the following options classes for its $1 
Pilot Program: TYCO International, LTD (TYC), Micron Tech. (MU), 
Oracle Co. (ORQ), Brocade Comm. (UBF), and Juniper Networks (JUP).
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    In its order approving the $1 Pilot Program, the Commission stated 
that if the Phlx seeks to extend, expand, or permanently approve the $1 
Pilot Program, that it must include a Pilot Program Report with its 
filing.\5\ Phlx's $1 Pilot Program Report (``Report'') reviews Phlx's 
experience with the $1 Pilot Program and supports Phlx's belief that 
extending the $1 Pilot Program is proper.\6\ Among other things, the 
Phlx believes that the Report shows the strength and efficacy of the $1 
Pilot Program based upon the steady increase in volume and open 
interest of options traded on Phlx at $1 strike price intervals. Based 
upon its Report, the Phlx further believes that the $1 Pilot Program 
has not and, in the future, should not create capacity problems for the 
Phlx or the Options Price Reporting Authority (``OPRA'') systems. 
Lastly, the Phlx states that most of those delisted $1 strike price 
option series were delisted to ensure that the options chosen for the 
$1 Pilot Program remained within the parameters of the $1 Pilot 
Program.
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    \5\ See Securities Exchange Release No. 48013, supra note 3.
    \6\ The Phlx attached the Pilot Program Report as an exhibit to 
this proposed rule change. Copies of the Pilot Program Report are 
available at Phlx and the Commission's Public Reference Room.
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2. Statutory Basis
    Phlx believes that its proposal is consistent with section 6(b) of 
the Act,\7\ in general, and furthers the objectives of section 6(b)(5) 
of the Act,\8\ specifically, in that it is designed to perfect the 
mechanism of a free and open market and the national market system, 
protect investors and the public interest and promotes just and 
equitable principles of trade. The Phlx believes that the proposal 
would achieve this by allowing listing of $1 strike price intervals, 
thereby stimulating customer interest in options overlying the lowest 
tier of stocks and creating greater trading opportunities and 
flexibility and providing customers with the ability to more closely 
tailor investment strategies to the precise movement of the underlying 
stocks.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.

[[Page 32653]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    No written comments were solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \9\ and subparagraph (f)(6) of Rule 19b-4 \10\ 
thereunder because it does not: (i) Significantly affect the protection 
of investors or the public interest; (ii) impose any significant burden 
on competition; (iii) become operative for 30 days from the date on 
which it was filed, or such shorter time as the Commission may 
designate; and Phlx has given the Commission written notice of its 
intention to file the proposed rule change at least five business days 
prior to filing. At any time within 60 days of the filing of such 
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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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    Under Rule 19b-4(f)(6)(iii) of the Act,\11\ the proposal does not 
become operative for 30 days after the date of its filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest and Phlx is required to 
give the Commission written notice of its intention to file the 
proposed rule change at least five business days prior to filing. Phlx 
has requested that the Commission waive the five-day pre-filing notice 
requirement and 30-day operative delay so that the $1 Pilot Program may 
continue without interruption after it would have otherwise expired on 
June 5, 2004. For this reason, the Commission, consistent with the 
protection of investors and the public interest, has determined to 
waive the five-day pre-filing notice requirement and 30-day operative 
delay,\12\ and, therefore, the proposal is effective and operative upon 
filing with the Commission.\13\
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    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ For purposes only of waiving the five-day pre-filing notice 
requirement and 30-day operative delay for this proposal, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \13\ In the event that the Phlx proposes to extend the Pilot 
Program beyond June 5, 2005, expand the number of options eligible 
for inclusion in the Pilot Program, or seek permanent approval of 
the Pilot Program, it should submit a Pilot Program report to the 
Commission along with the filing of such proposal. The report must 
cover the entire time the Pilot Program was in effect, and must 
include: (1) Data and written analysis on the open interest and 
trading volume for options (at all strike price intervals) selected 
for the Pilot Program; (2) delisted options series (for all strike 
price intervals) for all options selected for the Pilot Program; (3) 
an assessment of the appropriateness of $1 strike price intervals 
for the options the Phlx selected for the Pilot Program; (4) an 
assessment of the impact of the Pilot Program on the capacity of the 
Phlx's, OPRA's, and vendors' automated systems; (5) any capacity 
problems or other problems that arose during the operation of the 
Pilot Program and how the Phlx addressed them; (6) any complaints 
that the Phlx received during the operation of the Pilot Program and 
how the Phlx addressed them; and (7) any additional information that 
would help to assess the operation of the Pilot Program. The 
Commission expects the Phlx to submit a proposed rule change at 
least 60 days before the expiration of the Pilot Program in the 
event the Phlx wishes to extend, expand, or seek permanent approval 
of the Pilot Program.
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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 proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-Phlx-2004-38 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-Phlx-2004-38. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of Phlx. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-Phlx-2004-38 
and should be submitted on or before July 1, 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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-13087 Filed 6-9-04; 8:45 am]
BILLING CODE 8010-01-P