[Federal Register Volume 70, Number 12 (Wednesday, January 19, 2005)]
[Notices]
[Pages 3089-3091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-194]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51028; File No. SR-Phlx-2005-04]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to an Electronic Audit Trail for Orders in Options Overlying 
the Standard and Poor's Depositary Receipts

January 12, 2005.
    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 January 11, 2005, 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 Exchange has 
filed the proposal as a ``non-controversial'' rule change pursuant to 
Section 19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposal effective upon filing with the 
Commission.\5\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The Phlx asked the Commission to waive the 30-day operative 
delay. See Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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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 1063, Responsibilities of 
Floor Brokers, and Option Floor Procedure Advice (``OFPA'') C-2, 
Options Floor Broker Management System (``FBMS''), to extend the date 
on which Floor Brokers would be required to create an electronic audit 
trail for non-electronic orders in options overlying the Standard and 
Poor's Depositary Receipts (``SPDRs'') until March 28, 2005. The text 
of the proposed rule change is below. Proposed new language is in 
italics.

Responsibilities of Floor Brokers

    Rule 1063. (a)-(d)--No change.
    (e)(i) Options Floor Broker Management System. In order to create 
an electronic audit trail for options orders represented by Floor 
Brokers on the Exchange's Options Floor, a Floor Broker or such Floor 
Broker's employees shall, contemporaneously upon receipt of an order 
and prior to the representation of such an order in the trading crowd, 
record all options orders represented by such Floor Broker onto the 
electronic Options Floor Broker Management System (as described in Rule 
1080, Commentary .06). The following specific information with respect 
to orders represented by a Floor Broker shall be recorded by such Floor 
Broker or such Floor Broker's employees: (i) the order type (i.e., 
customer, firm, broker-dealer); (ii) the option symbol; (iii) buy, 
sell, or cancel; (iv) call, put, complex (i.e., spread, straddle), or 
contingency order as described in Rule 1066; (v) number of contracts; 
(vi) limit price or market order or, in the case of a complex order, 
net debit or credit, if applicable; (vii) whether the transaction is to 
open or close a position; and (viii) The Options Clearing Corporation 
(``OCC'') clearing number of the broker-dealer that submitted the order 
(collectively, the ``required information''). Upon the execution of 
such an order, the Floor Broker shall enter the time of execution of 
the trade. Floor Brokers or their employees shall enter clearing 
information onto the Options Floor Broker Management System no later 
than five minutes after the execution of a trade. In the event of a 
malfunction in the Options Floor Broker Management System, Floor 
Brokers shall record the required information on trade tickets, and 
shall not represent an order for execution which has not been time 
stamped with the time of entry on the trading floor. Such trade tickets 
shall be time stamped upon the execution of such an order. Floor 
Brokers or their employees shall enter the required information that is 
recorded on such trade tickets into AUTOM for inclusion in the 
electronic audit trail.
    (ii) Orders in Options Overlying Standard and Poor's Depositary 
Receipts (``SPDRs''). The requirements of sub-paragraph (e)(i) above 
shall apply to options overlying SPDRs beginning on March 28, 2005.
    (f) No change.

[[Page 3090]]

C-2 Options Floor Broker Management System

    Options Floor Broker Management System. In order to create an 
electronic audit trail for options orders represented by Floor Brokers 
on the Exchange's Options Floor, a Floor Broker or such Floor Broker's 
employees shall, contemporaneously upon receipt of an order and prior 
to the representation of such an order in the trading crowd, record all 
options orders represented by such Floor Broker onto the electronic 
Options Floor Broker Management System (as described in Rule 1080, 
Commentary .06). The following specific information with respect to 
orders represented by a Floor Broker shall be recorded by such Floor 
Broker or such Floor Broker's employees: (i) the order type (i.e., 
customer, firm, broker-dealer); (ii) the option symbol; (iii) buy, 
sell, or cancel; (iv) call, put, complex (i.e., spread, straddle), or 
contingency order as described in Rule 1066; (v) number of contracts; 
(vi) limit price or market order or, in the case of a complex order, 
net debit or credit, if applicable; (vii) whether the transaction is to 
open or close a position; and (viii) The Options Clearing Corporation 
(``OCC'') clearing number of the broker-dealer that submitted the order 
(collectively, the ``required information''). Upon the execution of 
such an order, the Floor Broker shall enter the time of execution of 
the trade. Floor Brokers or their employees shall enter clearing 
information onto the Options Floor Broker Management System no later 
than five minutes after the execution of a trade. In the event of a 
malfunction in the Options Floor Broker Management System, Floor 
Brokers shall record the required information on trade tickets, and 
shall not represent an order for execution which has not been time 
stamped with the time of entry on the trading floor. Such trade tickets 
shall be time stamped upon the execution of such an order. Floor 
Brokers or their employees shall enter the required information that is 
recorded on such trade tickets into AUTOM for inclusion in the 
electronic audit trail.
    Floor Brokers or their employees shall enter the required 
information (as described above) for FLEX and foreign currency options, 
including customized foreign currency options, or ensure that such 
information is entered, into the Exchange's electronic audit trail in 
the same electronic format as the required information for equity and 
index options. Floor Brokers or their employees shall enter the 
required information for FLEX and foreign currency options, including 
customized foreign currency options, into the electronic audit trail on 
the same business day that a specific event surrounding the lifecycle 
of an order in FLEX and foreign currency options, including customized 
foreign currency options (including, without limitation, orders, price 
or size changes, execution or cancellation) occurs.
    Orders in Options Overlying Standard and Poor's Depositary Receipts 
(``SPDRs''). The requirements of this Advice shall apply to options 
overlying SPDRs beginning on March 28, 2005.
    FINE SCHEDULE 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, 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 Exchange 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 amend Phlx Rule 
1063(e) and OFPA C-2 to reflect that the requirement that Floor Brokers 
create an electronic audit trail for non-electronic orders in options 
overlying SPDRs will commence on March 28, 2005.
    The Commission recently approved, on a permanent basis, amendments 
to Phlx Rule 1063 and OFPA C-2 to require that, contemporaneously upon 
receipt of an order and prior to the representation of such an order in 
the trading crowd, Floor Brokers must record all options orders 
represented by such Floor Broker onto the electronic Options Floor 
Broker Management System.\6\
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    \6\ See Securities Exchange Act Release No. 50997 (January 7, 
2005) (SR-Phlx-2003-40). The Options Floor Broker Management System 
is a component of AUTOM designed to enable Floor Brokers and/or 
their employees to enter, route and report transactions stemming 
from options orders received on the Exchange. The Options Floor 
Broker Management System also is designed to establish an electronic 
audit trail for options orders represented and executed by Floor 
Brokers on the Exchange, such that the audit trail provides an 
accurate, time-sequenced record of electronic and other orders, 
quotations and transactions on the Exchange, beginning with the 
receipt of an order by the Exchange, and further documenting the 
life of the order through the process of execution, partial 
execution, or cancellation of that order. See Exchange Rule 1080, 
Commentary .06.
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    The requirements of Phlx Rule 1063(e) and OFPA C-2 that Floor 
Brokers record the ``required information'' as defined therein 
commenced on January 10, 2005. Options overlying SPDRs began trading on 
the Exchange on January 10, 2005. The Exchange believes that the 
extension of the date for compliance with the electronic audit trail 
requirements for non-electronic orders in options overlying SPDRs until 
March 28, 2005 is reasonable and appropriate, because the manner in 
which these options trade, and the trading environment that exists in 
these options, is significantly different than that of equity options, 
and since options overlying SPDRs only very recently began trading on 
the Exchange, as described above.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \7\ in general, and furthers the objectives of Section 
6(b)(5) \8\ of the Act 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 requiring Exchange Floor Brokers to 
incorporate non-electronic orders in options overlying SPDRs while 
reasonably extending such requirement until March 28, 2005 respecting 
options overlying SPDRs.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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 burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing rule change: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any

[[Page 3091]]

significant burden on competition; and (3) does not become operative 
for 30 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, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A)
    \10\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6)\11\ normally 
does not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange requests that the 
Commission waive the 5-day pre-filing requirement and the 30-day 
operative delay, as specified in Rule 19b-4(f)(6)(iii), and designate 
the proposed rule change immediately operative. The Commission notes 
that by waiving the operative period, the Exchange has stated that it 
will be able to implement trading in options on SPDRs expeditiously. 
For these reasons, consistent with the protection of investors and the 
public interest, the Commission designates that the proposed rule 
change has become effective and operative immediately.
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    \11\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such 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-2005-04 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-2005-04. 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 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-2005-04 and should be submitted on or before 
February 9, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-194 Filed 1-18-05; 8:45 am]
BILLING CODE 8010-01-P