[Federal Register Volume 69, Number 145 (Thursday, July 29, 2004)]
[Notices]
[Pages 45365-45367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17289]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50070; File No. SR-Phlx-2004-46]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
Philadelphia Stock Exchange, Inc. Relating to a Pilot Program to Deploy 
the Options Floor Broker Management System

July 23, 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 July 20, 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 approve the 
proposal, on an accelerated basis.
---------------------------------------------------------------------------

    \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 extend its pilot program pertaining to the 
Options Floor Broker Management System (the ``System'') from August 2, 
2004 until March 1, 2005.\3\ The System is a new

[[Page 45366]]

component of the Exchange's Automated Options Market (AUTOM) and 
Automatic Execution (AUTO-X) System.\4\
---------------------------------------------------------------------------

    \3\ On July 31, 2003, the Exchange filed a proposed rule change 
to implement a pilot program to deploy the Exchange's new System. 
The proposed rule change was noticed, and accelerated approval was 
granted thereto, on July 31, 2003. The pilot was scheduled to expire 
on August 29, 2003. See Securities Exchange Act Release No. 48266 
(July 31, 2003), 68 FR 152 (August 7, 2003) (SR-Phlx-2003-56). On 
August 29, the Commission extended the pilot to September 12, 2003. 
See Securities Exchange Act Release No. 48425 (August 29, 2003), 68 
FR 53210 (September 9, 2003) (SR-Phlx-2003-60). On September 12, 
2003, the Commission extended the pilot again until November 14, 
2003. See Securities Exchange Act Release No. 48490 (September 12, 
2003), 68 FR 54926 (September 19, 2003) (SR-Phlx-2003-64). On 
December 18, 2003, the Commission extended the pilot until February 
6, 2004. See Securities Exchange Act Release No. 48947 (December 18, 
2003), 68 FR 75012 (December 29, 2003) (SR-Phlx-2003-81). On 
February 3, 2004, the Commission extended the pilot until August 2, 
2004. See Securities Exchange Act Release No. 49178 (February 3, 
2004), 69 FR 6360 (February 10, 2004) (SR-Phlx-2004-10). In order to 
avoid a lapse in the effectiveness of this pilot, the Commission now 
is approving the Exchange's proposal to extend the rule from August 
2, 2004 until March 1, 2005. The Exchange has also filed for 
permanent approval of the proposed rules. See Securities Exchange 
Act Release No. 48265 (July 31, 2003), 68 FR 47137 (August 7, 2003) 
(SR-Phlx-2003-40). The Exchange acknowledges that SR-Phlx-2003-40 
and Amendment No. 1 thereto are subject to public comment, which may 
result in amendments to the proposed rules.
    \4\ AUTOM is the Exchange's electronic order delivery, routing, 
execution and reporting system, which provides for the automatic 
entry and routing of equity option and index option orders to the 
Exchange trading floor. Orders delivered through AUTOM may be 
executed manually, or certain orders are eligible for AUTOM's 
automatic execution feature, AUTO-X. Equity option and index option 
specialists are required by the Exchange to participate in AUTOM and 
its features and enhancements. Option orders entered by Exchange 
members into AUTOM are routed to the appropriate specialist unit on 
the Exchange trading floor. See Exchange Rule 1080.
---------------------------------------------------------------------------

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 
effectiveness of the rules governing the System through March 1, 2005, 
in order to continue to have rules in place concerning the System and 
to ensure that Floor Brokers using the System during the continuing 
deployment would not be in violation of current Exchange rules 
regarding ticket-marking requirements. The rules had previously been 
effective through August 29, 2003, extended through September 12, 2003, 
November 14, 2003, February 6, 2004 and August 2, 2004.\5\
---------------------------------------------------------------------------

    \5\ See note 3, supra.
---------------------------------------------------------------------------

    The System is designed to enable Floor Brokers and/or their 
employees to enter, route and report transactions stemming from options 
orders received on the Exchange. Floor Brokers or their employees 
access the System through an electronic Exchange-provided handheld 
device on which they have the ability to enter the required information 
as set forth in Phlx Rule 1063(e), either from their respective posts 
on the options trading floor or in the trading crowd. The System 
replaced the Exchange's Floor Broker Order Entry System (``FBOE''),\6\ 
and is currently in use floor-wide.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 41524 (June 14, 
1999), 64 FR 33127 (June 21, 1999) (SR-Phlx-99-11). The FBOE, a 
component of AUTOM, currently provides a means for (but does not 
require) Floor Brokers to route eligible orders to the specialist's 
post, consistent with the order delivery criteria of the AUTOM 
System set forth in Exchange Rule 1080(b). The new System would 
include the same functionality as the FBOE, in addition to providing 
an electronic audit trail for non-electronic orders received by 
Floor Brokers by way of the entry of the required information in 
proposed Rule 1063(e).
---------------------------------------------------------------------------

    All of the rules pertaining to the System effective February 6, 
2004 are proposed to be extended until March 1, 2005, including: Rules 
1014(g), 1015, 1051, 1063, 1064, and 1080.06, as well as Option Floor 
Procedure Advices (``Advice'') A-11, B-6, B-8, C-2, C-3, F-1, F-2, and 
F-4.
    The Exchange believes that the System enables Floor Brokers to 
handle orders they represent more efficiently, and will further enable 
the Exchange to comply with the audit trail requirement for non-
electronic orders required under the Order Instituting Public 
Administrative Proceedings Pursuant to Section 19(h)(1) of the 
Securities Exchange Act of 1934, Making Findings and Imposing 
Sanctions.\7\
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 43268 (September 11, 
2000) and Administrative Proceeding File 3-10282 (the ``Order'').
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \8\ in general, and furthers the 
objectives of section 6(b)(5) of the Act \9\ in particular, in that it 
is designed to promote just and equitable principles of trade, remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system, and to protect investors and the public 
interest, by providing a System that enables Floor Brokers to handle 
orders they represent more efficiently, while enabling the Exchange to 
comply with the requirement in the Order to provide an electronic audit 
trail for non-electronic orders entered on the Exchange.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 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-2004-46 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-2004-46. 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-2004-46 and should be submitted on or before August 19, 2004.

[[Page 45367]]

IV. Discussion

    After careful review, 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.\10\ In particular the Commission finds that the proposed rule 
to extend a pilot program establishing rules governing the use of the 
System by floor brokers on the Exchange is consistent with section 
6(b)(5) of the Act, which requires that the rules of an exchange be 
designed to promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national securities system, and protect investors and the public 
interest.\11\
---------------------------------------------------------------------------

    \10\ In approving this proposed rule change, the Commission 
notes that it has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \11\ 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 the publication of 
notice thereof in the Federal Register. The Commission believes that 
granting accelerated approval to the proposed rule change on a pilot 
basis will allow the Exchange to have enforceable rules governing use 
of the Exchange's new System in effect prior to permanent approval of 
the rules, and will help ensure that members are properly trained and 
familiar with the rules. In addition, that Commission is granting 
accelerated approval in order to prevent a lapse in the effectiveness 
of the Exchange's rules governing operation of the System to ensure 
continuity of the pilot.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Phlx-2004-46) is approved on 
an accelerated basis on a pilot basis until March 1, 2005.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-17289 Filed 7-28-04; 8:45 am]
BILLING CODE 8010-01-P