[Federal Register Volume 70, Number 5 (Friday, January 7, 2005)]
[Notices]
[Pages 1496-1498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-24]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50946; File No. SR-Phlx-2004-87]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Philadelphia Stock Exchange, Inc. Relating to Amending Phlx Rule 
1072 in View of Commission Regulation SHO

December 29, 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 December 3, 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, II, and III, below, which Items have been 
prepared by the Phlx. On December 27, 2004, the Exchange filed 
Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change, as amended, was filed by the Exchange as a non-controversial 
filing under Rule 19b-4(f)(6) of the Act.\4\ The Commission

[[Page 1497]]

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.
    \3\ See Amendment No. 1 to the proposed rule change (December 
27, 2004). Amendment No. 1 replaced the Exchange's original filing 
in its entirety.
    \4\ 17 CFR 240.19b4(f)(6). For purposes of determining the 
effective date and calculating the sixty-day period within which the 
Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers that period 
to commence on December 28, 2004, the date the Exchange filed 
Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx, pursuant to Section 19(b)(1) and Rule 19b-4 
thereunder,\5\ proposes to amend Phlx Rule 1072 in view of the recent 
adoption of Regulation SHO.\6\ New text is italicized; deleted text is 
bracketed.
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    \5\ 17 CFR 240.19b-4.
    \6\ Securities Exchange Act Release No. 50103 (July 28, 2004), 
69 FR 48008 (August 6, 2004).
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* * * * *
Rule 1072.
Reporting Requirements Applicable to Short Sales in NASD/NM Securities
    This Rule is adopted in conjunction with the adoption of an 
addition to the Rules of Fair Practice of the NASD which imposes a bid 
test on short sales of stocks traded on the Nasdaq National Market 
subject to certain exemptions including, during a pilot period, an 
exemption for certain transactions of options market makers. This Rule 
will continue in effect only so long as the options market maker 
exemption from the NASD bid test remains in effect.
    (a) No member shall initiate, accept or transmit for execution, or 
execute a sale of a Nasdaq National Market (``NM'') security for its 
own account or for the account of another member unless the sale is 
clearly identified in a form and manner prescribed by the [Exchange as 
a long sale, short sale or bid test example sale] Securities and 
Exchange Commission's (``SEC'') Rule 200 under the Securities Exchange 
Act of 1934 promulgated pursuant to Regulation SHO (``SEC Rule 200'').
    (b) For purposes of this Rule, a short sale shall have the same 
meaning as set forth in SEC Rule [3b-3 under the Securities Exchange 
Act of 1934] 200.
    (c) through (f): No Change.
    (g) Notwithstanding the foregoing, this Rule 1072 shall not be 
applicable to any short sales for which the SEC has suspended short 
sale price tests pursuant to its Rule 202T, including any short sales 
covered by the SEC's Pilot Program suspending certain short sale price 
provisions at Exchange Act Release No. 50104 (July 28, 2004), or any 
SEC amendment(s) of the same.
    Commentary .01: 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 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 conform the 
Exchange's Rule 1072 to recent Commission actions in the area of short 
sale regulation.
    On July 28, 2004, the Commission published two releases making 
changes to the Commission's rules governing short sales. In the first 
release,\7\ the Commission adopted new Regulation SHO under the 
Securities Exchange Act of 1934, thereby replacing SEC Rules 3b-3 \8\ 
and 10a-2 \9\ and amending SEC Rule 10a-1.\10\ In particular, SEC Rule 
3b-3 was replaced by new SEC Rule 200,\11\ which defines ``short 
sales'' and requires brokers and dealers to mark sales in all equity 
securities ``long,'' ``short,'' or ``short exempt.'' In the second 
release,\12\ the Commission promulgated a pilot program pursuant to new 
SEC Rule 202T, which suspended the tick test provision of SEC Rule 10a-
1 and any short sale price test of any exchange or national securities 
association with respect to certain securities, for a period of 
approximately one year beginning on January 3, 2005 (``Short Sale Pilot 
Program''), which beginning date the Commission extended to May 2, 2005 
by order of November 29, 2004.\13\ In particular, the Short Sale Pilot 
Program suspended tick and national securities association price tests 
for 1000 of the securities in the Russell 3000 index. In view of these 
developments in the area of short sale regulation, the Exchange is 
proposing several amendments to Phlx Rule 1072 related to short sales.
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    \7\ Securities Exchange Act Release No. 50103 (July 28, 2004), 
69 FR 48008 (August 6, 2004).
    \8\ 17 CFR 240.3b-3.
    \9\ 17 CFR 240.10a-2.
    \10\ 17 CFR 240.10a-1.
    \11\ 17 CFR 240.200.
    \12\ Securities Exchange Act Release No. 50104 (July 28, 2004), 
69 FR 48032 (August 6, 2004).
    \13\ Although the Commission's order resets the Short Sale Pilot 
Program to commence on May 2, 2005 and end on April 28, 2006, all 
other terms of the pilot program remain unchanged. See Securities 
Exchange Act Release No. 50747 (November 29, 2004).
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    Phlx Rule 1072(a) currently provides that Exchange members can not 
engage in transactions of Nasdaq National Market (NM) securities unless 
they are clearly identified in a form and manner prescribed by the 
Exchange. The proposed amendment to Rule 1072(a) clarifies that such 
transactions must be identified as prescribed by SEC Rule 200. Phlx 
Rule 1072(b) currently states that a short sale will have the meaning 
set forth in SEC Rule 3b-3. The proposed amendment to Rule 1072(b) adds 
a reference to SEC Rule 200 and deletes reference to SEC Rule 3b-3. 
Finally, an amendment proposes to add new section (g) to Rule 1072 to 
make clear that the provisions of the rule will not apply to any short 
sales for which the Commission suspends short sales price tests 
pursuant to its Rule 202T, including the Short Sale Pilot Program. 
These changes are intended to update Rule 1072 to reflect Regulation 
SHO.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \15\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and to perfect the mechanism of a free and open market and a 
national market system and, in general, to protect investors and the 
public interest. Specifically, the proposed rule change conforms 
Exchange options rule procedures to new Commission releases, rules, and 
a pilot program relating to short sales.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 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.

[[Page 1498]]

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

    The proposed rule change is being designated by the Exchange as a 
``non-controversial'' rule pursuant to Section 19(b)(3)(A) of the Act 
and subparagraph (f)(6) of Rule 19b-4 thereunder, because the proposed 
rule change: (1) Does not significantly affect the protection of 
investors or the public interest; (2) does not impose any significant 
burden on competition; and (3) does not become operative for thirty 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest. Therefore, it has become effective pursuant to 
Section 19(b)(3)(A) \16\ of the Act and Rule 19b-4(f)(6) \17\ 
thereunder. The Exchange requests that the Commission waive the 30-day 
pre-operative delay requirement contained in Rule 19b-4(f)(6)(iii),\18\ 
so that the proposed rule change may become operative on January 3, 
2005, the compliance date for Regulation SHO. The Exchange is for 
similar reasons requesting that the five business day pre-filing period 
be waived in order to file by December 3, 2004.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ Under subparagraph (f)(6)(iii) of Rule 19b-4, the proposal 
may not become operative for 30 days after the date of its filing, 
or such shorter time as the Commission may designate if consistent 
with the protection of investors and the public interest. 17 CFR 
240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 5-day notice and 30-day 
pre-operative delay is consistent with the protection of investors and 
the public interest. The Commission believes that accelerating the 
operative date does not raise any new regulatory issues, significantly 
affect the protection of investors or the public interest, or impose 
any significant burden on competition. For these reasons, the 
Commission designates the proposed rule change effective and operative 
immediately.
    At any time within 60 days of the filing of a rule change pursuant 
to Section 19(b)(3)(A) of the Act, the Commission may summarily 
abrogate the 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.

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-2004-87 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-2004-87. 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 Number SR-Phlx-2004-87 and should be 
submitted on or before January 28, 2005. 

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E5-24 Filed 1-6-05; 8:45 am]
BILLING CODE 8010-01-P