[Federal Register Volume 69, Number 120 (Wednesday, June 23, 2004)]
[Notices]
[Pages 35119-35120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14143]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49864; File No. SR-Phlx-2004-35]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval to a Proposed Rule Change by the 
Philadelphia Stock Exchange, Inc. Relating to the Extension of a Pilot 
Limiting Trade-Through Liability at the End of the Options Trading 
Session

June 15, 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 7, 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 the Phlx. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons, and to grant accelerated approval to the 
proposed rule change.
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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

    The Phlx proposes to amend Exchange Rule 1085(a)(2)(ii)(C) (Order 
Protection) to correspond to the proposed Joint Amendment No. 12 to the 
current pilot (the ``pilot'') under the Plan for the Purpose of 
Creating and Operating an Intermarket Option Linkage (the ``Linkage 
Plan''), which would extend a pilot program that limits Trade-Through 
\3\ liability during the last seven minutes of the options trading 
session, until January 31, 2005.\4\ The extended pilot would also 
increase the limit on liability during the last seven minutes of the 
options trading session from 10 contracts to 25 contracts per 
Satisfaction Order.\5\
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    \3\ ``Trade-Through'' means a transaction in an options series 
at a price that is inferior to the national best bid or offer in an 
options series calculated by a Participant. See Section 2(29) of the 
Linkage Plan. A ``Participant'' is defined as an Eligible Exchange 
whose participation in the Linkage Plan has become effective 
pursuant to Section 4(c) of the Linkage Plan. See Section 2(24) of 
the Linkage Plan. Currently, the Participants in the Linkage Plan 
are the International Securities Exchange, Inc., the American Stock 
Exchange LLC, the Chicago Board Options Exchange, Inc., the Pacific 
Exchange, Inc., the Phlx and the Boston Stock Exchange, Inc.
    \4\ The Phlx has separately filed Joint Amendment No. 12 to the 
Linkage Plan to implement substantially the same change to the 
Linkage Plan. See Securities Exchange Act Release No. 49692 (May 12, 
2004), 69 FR 29956 (May 19, 2004) (Notice of Joint Amendment No. 
12). The Commission previously approved the pilot to implement a 
limitation on Trade-Through liability during the last seven minutes 
of the trading day on a 120-day temporary basis on January 31, 2003. 
See Securities Exchange Act Release No. 47298, 68 FR 6524 (February 
7, 2003). On June 18, 2003, the Commission approved the pilot until 
January 31, 2004. See Securities Exchange Act Release No. 48055, 68 
FR 37869 (June 25, 2003) (Order approving Joint Amendment No. 4). 
The Commission subsequently extended the pilot until June 30, 2004. 
See Securities Exchange Act Release No. 49146 (January 29, 2004), 69 
FR 5618 (February 5, 2004) (Order approving Joint Amendment No. 8).
    \5\ A ``Satisfaction Order,'' is defined as an order sent 
through the Options Intermarket Linkage to notify a member of 
another Participant Exchange of a Trade-Through and to seek 
satisfaction of the liability arising from that Trade-Through. See 
Section 2(16) of the Linkage Plan.
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    The text of the proposed rule change is available at the Exchange 
and at 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, 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 statements may be examined at the places specified in 
Item III 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 extend the pilot 
provision contained in Exchange Rule 1085(a)(2)(ii)(C), which limits 
trade-through liability during the last seven minutes of the options 
trading session. Currently, under the pilot, an Exchange member's 
Trade-Through liability is limited to 10 contracts per Satisfaction 
Order received during the period between five minutes prior to the 
close of trading in the underlying security and the close of trading in 
the options class.
    The Exchange proposes to extend the pilot for an additional seven 
months, until January 31, 2005. In addition, the Exchange proposes to 
increase the limit on Trade-Through liability from 10 contracts to 25 
contracts per Satisfaction Order received during the period between 
five minutes prior to the close of trading in the underlying security 
and the close of trading in the options class. This increase in the 
limit on liability would be effective on July 1, 2004, when the current 
pilot expires.
    As a condition to granting permanent approval of this limitation, 
the Commission required that the Participants provide the Commission 
with a report regarding data on the use of the exemption no later than 
60 days before seeking permanent approval (the ``Report''). The 
Participants have provided the Commission with certain information 
required in the Report, and continue to discuss with Commission staff 
what additional information the staff may need to evaluate possible 
permanent approval of the Trade-Through limitation. This extension will 
allow the limitation to continue in effect, with the increase in 
liability to 25 contracts per Satisfaction Order, while the Commission 
staff and the Participants continue to discuss permanent approval.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \7\ in particular, in that it is designed to perfect 
the mechanisms of a free and open market and the national market 
system, protect investors and the public interest, and promote just and 
equitable principles of trade by extending the pilot limiting Trade-
Through liability during the period between five minutes prior to the 
close of trading in the underlying security and the close of trading in 
the options class until January 31, 2005, and by increasing the limit 
on Trade-Through liability from 10 contracts to 25 contracts per 
Satisfaction Order received during the same period.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

[[Page 35120]]

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. 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-2004-35 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-2004-35. 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 the 
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-2004-35 and should be submitted on or before July 14, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    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.\8\ In 
particular, the Commission finds that the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act,\9\ 
which requires, among other things, that the rules of a national 
securities 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 a national market system, and to protect 
investors and the public interest. The Commission believes that 
extending the pilot will enable Participants to continue to compile the 
data necessary for the Commission to determine whether permanent 
approval of the proposed rule change is appropriate and in the public 
interest. The Commission further believes that raising the limitation 
in liability for Satisfaction Orders during the last seven minutes of 
the trading day from 10 contracts to 25 contracts for this pilot period 
should help to protect investors and promote the public interest.
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    \8\ 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).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of the 
notice thereof in the Federal Register. As noted above, the proposed 
rule change incorporates changes into the Phlx's Rules that correspond 
to changes made to the Linkage Plan through Joint Amendment No. 12, 
which was published for public comment in the Federal Register on May 
19, 2004.\10\ The Commission received no comments in response to 
publication of Joint Amendment No. 12. The Commission believes that no 
new issues of regulatory concern are being raised by the Phlx's 
proposed rule change. The Commission believes, therefore, that granting 
accelerated approval of the proposed rule change is appropriate and 
consistent with Sections 6 and 19(b) of the Act.\11\
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    \10\ See supra note 4.
    \11\ 15 U.S.C. 78f and 78s(b).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Phlx-2004-35) is approved on 
an accelerated basis.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-14143 Filed 6-22-04; 8:45 am]
BILLING CODE 8010-01-P