[Federal Register Volume 69, Number 235 (Wednesday, December 8, 2004)]
[Notices]
[Pages 71093-71095]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3537]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50776; File No. SR-Phlx-2004-80]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Automatic Execution of Certain Orders in PACE During Locked 
Markets

December 1, 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 November 23, 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.
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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 Phlx Rule 229 to allow PACE \3\ orders 
to automatically execute when the market for the security is locked, as 
chosen by specialists, on a security by security basis. Such orders 
would be automatically executed at the locked price when they are 
within the specialist automatic execution parameters. The text of 
amended Exchange Rule is set forth below. Proposed new language is 
italicized; proposed deletions are in brackets.
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    \3\ PACE is the Exchange's automated order routing, delivery, 
execution and reporting system for equities. See Phlx Rule 229.
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Rule 229. Philadelphia Stock Exchange Automated Communication and 
Execution System (PACE)

Supplementary Material: * * *
    .01--.04 No Change.
    .05 Public Order Exposure System--Subject to Supplementary Material 
Section .07, all round-lot market orders up to 500 shares and PRL 
market orders up to 599 shares will be stopped at the PACE Quote at the 
time of entry into the system (``Stop Price'') and be subject to a 
delay of up to 30 seconds from being executed in order to receive an 
opportunity for price improvement. If such market order is not executed 
within the 30 second window, the order will be automatically executed 
at the Stop Price. If the PACE Quote at the time of order entry into 
the system reflects a point spread (the difference between the best bid 
and offer) of $.05 or less for equities trading in decimals, pursuant 
to Rule 134 or 125, that order will be executed immediately without the 
30 second delay. Subject to these procedures, the specialist may 
voluntarily agree to execute round-lot market orders of a size greater 
than 500 shares and PRL market orders of a size greater than 599 shares 
upon entry into the system. Where the specialist has voluntarily agreed 
to automatically execute market orders greater than 599 shares and the 
market order size is greater than 599 shares, but less than or equal to 
the size of the PACE Quote, the order is automatically executable at 
the PACE Quote; if such order is greater than the size of the PACE 
Quote, the order shall receive an execution at the PACE Quote up to the 
size of the PACE Quote, either manually or automatically (once this 
feature is implemented) with the balance of the order receiving a 
professional execution, in accordance with Supplementary Material, 
.10(b) below; provided that the specialist may guarantee an automatic 
execution at the PACE Quote up to the entire size of such specialist's 
automatic execution guarantee (regardless of the size of the PACE 
Quote).
    When the PACE Quote is locked, [in a Trust Share or Trust Issued 
Receipt,] automatically executable market orders entered after the 
opening will be automatically executed at the locked price, if all the 
specialist assigned to a security determine[s] to elect this feature 
for a particular security.
    .06-.09 No Change.\4\
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    \4\ With the Exchange's consent, the Commission has made a 
technical correction to the text of the proposed rule change. 
Telephone conversation between John Dayton, Assistant Secretary and 
Counsel, Phlx, and Terri Evans, Senior Special Counsel, Division, 
Commission, on November 29, 2004 (changing ``.07-.09 No Change'' to 
``.06-.09 No Change'').
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    .10(a) In the case of stocks for which the PACE quote bid is less 
than $1.00, the provisions of paragraph .10(b) shall apply.
    In the case of stocks for which the PACE quote bid is $1.00 or 
more:
    (i) Marketable Limit Orders--round-lot orders up to 500 shares and 
the round-lot portion of PRL limit orders up to 599 shares which are 
entered at the PACE Quote shall be executed at the PACE Quote. Such 
orders shall be executed automatically unless the member organization 
entering orders otherwise elects. Specialists may voluntarily agree to 
execute marketable limit orders greater than 599 shares. Where the 
specialist has voluntarily agreed to automatically execute marketable 
limit orders greater than 599 shares and the order size is greater than 
599 shares, but less than or equal to the size of the PACE Quote, the 
marketable limit order is automatically executable at the PACE Quote; 
if the order size is greater than 599 shares and greater than the size 
of the PACE Quote, the marketable limit order shall manually receive an 
execution at the PACE Quote up to the size of the PACE Quote, with the 
balance of the order receiving a professional execution, in accordance 
with Supplementary Material, .10(b) below; provided that the specialist 
may guarantee an automatic execution at the PACE Quote up to the entire 
size of such specialist's automatic execution guarantee.
    When the PACE Quote is locked, [in a Trust Share or Trust Issued 
Receipt,] automatically executable marketable limit orders entered 
after the opening will be automatically executed at the locked price, 
if all the specialists assigned to a security determine[s] to elect 
this feature for a particular security.
    Marketable limit orders may be eligible for automatic price 
improvement or manual double-up/double-down price protection pursuant 
to Supplementary Material .07(c) above.
    .10(a)(ii)-(iii) No Change.
    .10(b) and (c) No Change.
    .11-.22 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 received on the proposed rule change. The 
text of these statements

[[Page 71094]]

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 increase the 
specialists' efficiency and turnaround time for orders that are 
received during a locked market. This proposed rule change would allow 
specialists trading any security \5\ to elect to automatically execute 
all eligible PACE orders that are within the specialist's automatic 
execution parameters when the market for such security is locked.\6\ 
This proposed rule change expands this feature to all securities, which 
is currently available only to specialists in Trust Shares and Trust 
Issued Receipts.\7\
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    \5\ The Exchange will provide notice as to which securities will 
be subject to the new automation feature. This notice will be 
provided initially when the selection occurs, and subsequently each 
time the specialist selects or deselects this feature.
    \6\ As stated in the proposed changes to Phlx Rule 229, if there 
are competing specialists in a security, this feature will be 
available only if all the specialists assigned to a security 
determine to elect this feature for a particular security.
    \7\ See Securities Exchange Act Release No. 49456 (March 22, 
2004), 69 FR 16331 (March 29, 2004) (SR-Phlx-2004-19).
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    Currently, during a locked market, market and marketable limit 
orders are not executed automatically, but rather are handled manually 
by the specialist. This proposed rule change should increase the 
efficiency of order handling by eliminating the necessity to deal with 
these orders manually. The quality of the execution of these orders 
should be improved and enhanced, as execution time should be reduced 
while the orders continue to receive the best bid or offer (in this 
case, the locked price).
2. Statutory Basis
    The Exchange believes that its proposal 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 should promote just 
and equitable principles of trade, remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, protect investors and the public interest by 
increasing automated order handling.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 
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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \10\ and 
Rule 19b-4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission waive the 30-day 
operative delay specified in Rule 19b-4(f)(6) to allow the Exchange to 
make this feature available to its specialists as soon as possible. 
According to the Exchange, this should allow specialists to increase 
their efficiency and turnaround time for orders that are received 
during locked markets. The Exchange has further represented that it has 
not experienced any problems with orders for Trust Shares and Trust 
Issued Receipts receiving the locked price nor received any customer 
complaints.\12\
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    \12\ Telephone conversation between John Dayton, Assistant 
Secretary and Counsel, Phlx, and Terri Evans, Senior Special 
Counsel, Division, Commission, on December 1, 2004.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\13\ By waiving the operative delay, all specialists on the 
Exchange will be able to automatically execute eligible PACE orders 
when the market for a particular security is locked, not just 
specialists in Trust Shares and Trust Issued Receipts. Further the 
Commission notes that the Exchange has represented that there have been 
no problems or complaints with respect to this feature for Trust Shares 
or Trust Issued Receipts.
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    \13\ For purposes of only waiving the operative date of the 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the 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.

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-2004-80 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-2004-80. 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. Copies of the 
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

[[Page 71095]]

Number SR-Phlx-2004-80 and should be submitted on or before December 
29, 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. E4-3537 Filed 12-7-04; 8:45 am]
BILLING CODE 8010-01-P