[Federal Register Volume 69, Number 123 (Monday, June 28, 2004)]
[Notices]
[Pages 36147-36148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14539]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49891; File No. SR-Phlx-2004-26]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
Philadelphia Stock Exchange, Inc. Relating to Sending Multiple 
Principal Acting as Agent Orders That Are Larger Than the Firm Customer 
Quote Size

June 17, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on April 23, 2004, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rule 1084(c), Operation of the 
Linkage, to clarify the manner in which the Exchange may send a 
Principal Acting as Agent Order (``P/A Order'') \3\ that is larger than 
the Firm Customer Quote Size (``FCQS'') \4\ under the Plan for the 
Purpose of Creating and Operating an Options Intermarket Linkage (the 
``Linkage Plan''). The text of the proposed rule change is available at 
the Office of the Secretary, Phlx, and at the Commission.
---------------------------------------------------------------------------

    \3\ A Principal Acting as Agent (``P/A'') Order is an order for 
the principal account of a specialist (or equivalent entity on 
another Participant Exchange that is authorized to represent Public 
Customer orders), reflecting the terms of a related unexecuted 
Public Customer order for which the specialist is acting as agent. 
See Phlx Rule 1083(k).
    \4\ ``Firm Customer Quote Size'' means the lesser of (a) the 
number of option contracts that the Participant Exchange sending a 
P/A Order guarantees it will automatically execute at its 
disseminated price in a series of an Eligible Option Class for 
Public Customer orders entered directly for execution in that 
market; or (b) the number of option contracts that the Participant 
Exchange receiving a P/A Order guarantees it will automatically 
execute at its disseminated price in a series of an Eligible Option 
Class for Public Customer orders entered directly for execution in 
that market. See Phlx Rule 1083(g).
---------------------------------------------------------------------------

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 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 clarify the manner in 
which an Exchange member may send P/A Orders that are larger than the 
FCQS. Currently, under Linkage Plan Section 7(a)(ii)(B) and Exchange 
Rule 1084, a specialist may send a P/A Order through Linkage in one of 
two ways when the P/A Order is larger than the FCQS. First, a 
specialist may send a P/A Order larger than the FCQS for manual 
processing at the receiving exchange. Second, the specialist may send 
an initial P/A Order for up to the FCQS. If the receiving exchange 
executes the P/A Order and continues to disseminate the same price at 
the National Best Bid or Offer (``NBBO'') for 15 seconds after 
reporting the execution of the initial P/A Order, the specialist may 
send an additional P/A Order to the same Participant Exchange for the 
lesser of the entire remaining size of the customer order or 100 
contracts.
    The proposed rule change addresses the handling of orders when the 
specialist chooses the second alternative, i.e., to send multiple P/A 
Orders. The current Linkage Plan and Exchange rules do not account for 
the possibility that an exchange's disseminated quotation may be for 
less than either the remaining size of the customer order or 100 
contracts. In order to properly address that possibility, the proposed 
amendment to Phlx Rule 1084(c)(2)(ii) would specify that a specialist 
sending a second P/A order may limit the size of such an order to the 
lesser of: (1) The size of the receiving exchange's disseminated 
quotation; (2) 100 contracts; or (3) the entire remaining size of the 
customer order.
    The proposal also addresses how multiple P/A orders are handled 
when more than one exchange is disseminating the same bid or offer at 
the NBBO. Currently, the Linkage Plan and exchange rules are not 
definitive as to whether, in the case of multiple P/A orders, the 
specialist must send the entire order to one exchange or may send 
orders to multiple exchanges that are disseminating the same bid or 
offer at the NBBO. The proposed rule change would permit a specialist 
to send P/A orders to multiple exchanges, provided that all such orders 
are for the lesser of the entire remaining size or 100 contracts in the 
aggregate. A specialist may, nonetheless, limit the size of any single 
additional P/A order to the size

[[Page 36148]]

of the receiving exchange's disseminated quotation.
    The proposed rule change also includes administrative provisions 
relating to the time period within which a receiving exchange must 
inform the specialist of the amount of the order executed and the 
amount, if any, that was canceled, and the time period for which a 
sending exchange must wait while the receiving exchange continues to 
disseminate the same price at the NBBO before sending a second P/A 
order. Currently, the applicable time period for each such circumstance 
is 15 seconds. The proposed rule change contemplates that the Options 
Linkage Authority could determine different applicable time periods for 
both circumstances, and that any change to such time periods must be 
approved by the Commission before becoming effective.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act \5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \6\ 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 permitting Exchange specialists to 
send multiple P/A Orders to multiple exchanges for a number of 
contracts equal to the receiving exchange's disseminated size.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. 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-2004-26 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-2004-26. 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 Section, 450 Fifth Street, 
NW., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal offices 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-2004-26 and should be 
submitted on or before July 19, 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.\7\ In 
particular, the Commission finds that the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act \8\ 
which requires, among other things, that the rules of an 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 
to protect investors and the public interest. The Commission believes 
that the proposed rule change should clarify the specialist's 
obligations in handling P/A Orders, which should facilitate the 
efficient handling of P/A Orders through the Linkage.
---------------------------------------------------------------------------

    \7\ 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).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 Rules that correspond to 
changes made to the Linkage Plan through Joint Amendment No. 10, which 
was published for comment on May 19, 2004.\9\ The Commission received 
no comments on the substance of that Amendment. The Commission believes 
that no new issues of regulatory concern are being raised by 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.\10\
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 49689 (May 12, 
2004), 69 FR 28953.
    \10\ 15 U.S.C. 78f and 78s(b).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-Phlx-2004-26) is approved on 
an accelerated basis.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-14539 Filed 6-25-04; 8:45 am]
BILLING CODE 8010-01-P