[Federal Register Volume 69, Number 179 (Thursday, September 16, 2004)]
[Notices]
[Pages 55864-55866]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2225]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50342; File No. SR-Phlx-2004-16]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, and Amendment No. 1 Thereto, by the Philadelphia Stock 
Exchange, Inc. Relating to Exchange Rules 1083(g) and (h), To Modify 
the Definitions of ``Firm Customer Quote Size'' and ``Firm Principal 
Quote Size''

September 9, 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 February 13, 2004, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') submitted to 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 Phlx. On August 
11, 2004, the Phlx submitted Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Richard S. Rudolph, Phlx, Director and 
Counsel to Deborah Lassman Flynn, Assistant Director, Division of 
Market Regulation, Commission, dated August 10, 2004 (``Amendment 
No. 1''). In Amendment No. 1, the Phlx amended the proposed rule 
text to clarify that the general requirement that the Exchange's 
Firm Customer Quote Size (``FCQS'') and Firm Principal Quote Size 
(``FPQS'') be at least 10 contracts would not apply if the Phlx were 
disseminating a quotation of fewer than 10 contracts. In that case, 
the Exchange may establish a FQCS or FPQS equal to its disseminated 
size.
---------------------------------------------------------------------------

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

    The Phlx proposes to amend its rules relating to the Plan for the 
Purpose of Creating and Operating an Intermarket Option Linkage 
(``Linkage Plan'').
    The text of the proposed rule change, as amended, is below. 
Proposed additions are in italics. Proposed deletions are in 
[brackets].
* * * * *

Intermarket Linkage

Rule 1083. Definitions
    The following terms shall have the meaning specified in this Rule 
solely for the purpose of Rules 1083 through 1087:
    (a)-(f) (No change).
    (g) ``Firm Customer Quote Size'' with respect to a P/A Order 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. This 
number shall be at least 10, unless the receiving Participant is 
disseminating a quotation of less than 10 contracts, in which case this 
number may equal such quotation size.
    (h) ``Firm Principal Quote Size'' means the number of options 
contracts that a Participant Exchange guarantees it will execute at its 
disseminated price for incoming Principal Orders in an Eligible Option 
Class. This number shall be at least 10[.], however if the Participant 
is disseminating a quotation size of less than 10 contracts, this 
number may equal such quotation size.
    (i)-(u) (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 Phlx included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it had received on the proposed rule change. The 
text of these statements may be examined at the

[[Page 55865]]

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 eliminate the 
requirement that the Phlx members that participate in the Linkage Plan 
be firm for incoming Principal and Principal Acting as Agent (``P/A'') 
Orders for a size of at least 10 contracts where the Exchange's 
disseminated size is less than 10 contracts. The proposed rule change 
would allow Phlx members that participate in the Linkage Plan to 
execute inbound Principal and P/A Orders at their actual disseminated 
size as opposed to a minimum quote size.\4\
---------------------------------------------------------------------------

    \4\ At the request of the Exchange, this paragraph has been 
modified to make clear that the proposed rule change applies 
exclusively to Phlx members. Telephone conversation between Richard 
S. Rudolph, Director and Counsel, Phlx, and Tim Fox, Attorney, 
Division of Market Regulation (``Division''), Commission, on 
September 7, 2004.
---------------------------------------------------------------------------

    The proposed rule change represents another step towards the 
execution of all order types at the Exchange's disseminated price up to 
its actual disseminated size, rather than the execution of orders at 
the Exchange's disseminated price up to an artificially designated 
size. The Commission has approved several Exchange rule amendments that 
require Phlx responsible brokers or dealers to be firm for their actual 
disseminated size,\5\ as well as amendments providing automatic 
executions at the Exchange's disseminated size, rather than a pre-set 
``AUTO-X guarantee.'' \6\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 47646 (April 8, 
2003), 68 FR 27610 (May 20, 2003) (SR-Phlx-2003-18).
    \6\ See Securities Exchange Act Release No. 46886 (November 22, 
2002), 67 FR 72015 (December 3, 2002) (SR-Phlx-2002-39).
---------------------------------------------------------------------------

    The purpose of the instant proposed rule change is to eliminate the 
artificial 10 contract minimum contained in the definition of ``FCQS'' 
and ``FPQS'' in the Exchange's rules. Specifically, the proposed rule 
change would allow Phlx members that participate in the Linkage Plan to 
execute inbound P/A and Principal Orders at the actual size of the 
disseminated quote.\7\ Currently, Exchange Rules 1083(g) and (h) impose 
the obligation on the Phlx specialist to execute an order at a minimum 
guaranteed size of 10 contracts despite the fact that the actual 
disseminated size may be less than 10 contracts.\8\ The proposed rule 
change would permit the Phlx to execute inbound Linkage orders at the 
Exchange's actual disseminated size. The proposed rule change would 
eliminate the artificial minimum guaranteed size of 10 contracts, and 
would therefore require Phlx specialists to be firm at the Exchange's 
disseminated price for their actual disseminated size.
---------------------------------------------------------------------------

    \7\ At the Exchange's request, this sentence was modified to 
make clear that the proposed rule change would permit the execution 
of Principal and P/A Orders at the actual disseminated size as 
opposed to the size of the order. Telephone conversation between 
Richard S. Rudolph, Director and Counsel, Phlx, and Tim Fox, 
Attorney, Division, Commission, on September 7, 2004.
    \8\ Currently, for example, if the Exchange's disseminated size 
is for 3 contracts and the Phlx receives an inbound eligible P/A or 
Principal Order with a size of 10 contracts, then Rule 1083 requires 
that the specialist must execute 10 contracts despite the fact that 
the Exchange's disseminated size is only 3 contracts.
---------------------------------------------------------------------------

    The Exchange believes that executions of Principal and P/A Orders 
at the Exchange's actual disseminated size should enhance the ability 
of participants of the Linkage Plan that send Principal and P/A Orders 
to the Exchange to ascertain the actual number of contracts available 
at the Exchange's disseminated price, thus resulting in more 
transparency in the marketplace.
2. Statutory Basis
    The Phlx believes that the proposed rule is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) \10\ 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 
provide executions for Linkage Orders at the Exchange's actual 
disseminated size.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx 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 solicited or received with respect to the 
proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the Phlx consents, the Commission will:
    (A) By order approve such proposed rule change, as amended; or
    (B) Institute proceedings to determine whether the proposed rule 
change, as amended, should be disapproved.

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-2004-16 on the subject line.

Paper Ccomments

     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-2004-16. 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

[[Page 55866]]

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-2004-16 and should be submitted on or before October 7, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E4-2225 Filed 9-15-04; 8:45 am]
BILLING CODE 8010-01-P