[Federal Register Volume 70, Number 87 (Friday, May 6, 2005)]
[Notices]
[Pages 24156-24158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2200]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51640; File No. SR-Phlx-2005-20]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, and Amendment No. 1 Thereto, by the Philadelphia Stock 
Exchange, Inc. Relating to the Elimination of the Prohibition Against 
the Entry of Multiple Orders in an Option Within Any 15-Second Period 
for an Account or Accounts of the Same Beneficial Owner

April 29, 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 March 24, 2005, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
the ``Exchange'') filed with 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 April 11, 
2005, the Phlx filed 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange revised the statutory 
section under which the proposed rule change was filed from Section 
19(b)(3)(A) of the Act, 15 U.S.C. 78s(b)(3)(A), to Section 19(b)(2) 
of the Act, 15 U.S.C. 78s(b)(2).
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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 Exchange Rule 1080, Philadelphia Stock 
Exchange Automated Options Market (``AUTOM'') System,\4\ to eliminate 
the limitation contained in the rule providing that Order Entry Firms 
(as defined below) may neither enter nor permit the entry of multiple 
orders in an option within any 15-second period for an account or 
accounts of the same beneficial owner, and to remove a similar 
provision relating to orders submitted by off-floor broker-dealers (as 
defined below). The text of the proposed rule change is available on 
the Phlx's Web site (http://www.phlx.com), at the principal office of 
the Phlx, and at the Commission's Public Reference Room. The text of 
the proposed rule change also appears below. Deletions are [bracketed].
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    \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 features, Book Sweep and Book Match. Equity 
option and index option specialists are required by the Exchange to 
participate in AUTOM and its features and enhancements. See Exchange 
Rule 1080.
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* * * * *

Philadelphia Stock Exchange Automated Options Market (AUTOM) and 
Automatic Execution System (AUTO-X)

    Rule 1080. (a)-(b) No change.
    (c) * * *
    (i) No change.
    (ii) Order Entry Firms and Users.
    (A) No change.
    (B) Obligations of Order Entry Firms. Order Entry Firms shall:
    (1)-(2) No change.
    [(3) Neither enter nor permit the entry of multiple orders in call 
options and/or put options in the same option issue within any 15-
second period for an account or accounts of the same beneficial owner.]
    (iii)-(iv) No change.
    (d)-(k) No change.
    Commentary:
    .01-.04 No change.
    .05 Off-floor broker-dealer limit orders delivered through AUTOM 
must be represented on the Exchange Floor by a floor member. Off-floor 
broker-dealer orders delivered via AUTOM shall be for a minimum size of 
one (1) contract. Off-floor broker-dealer limit orders are subject to 
the following other provisions:
    (i)-(ii) No change.
    [(iii) Off-floor broker-dealer limit orders that are eligible for 
automatic execution entered via AUTOM for the account(s) of the same 
beneficial owner may not be entered in options on the same underlying 
security more frequently than every 15 seconds.]
    .06-.07 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 proposal and discussed any 
comments it received on the proposed rule change, as amended. 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.

[[Page 24157]]

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 number 
of orders handled electronically on the Exchange by eliminating the 
Exchange's current prohibition against the entry via AUTOM of multiple 
orders for an account or accounts of the same beneficial owner in the 
same option within any 15-second period.
    In August, 2001, the Exchange adopted Rule 1080(c)(ii)(B)(3) 
providing that an Order Entry Firm \5\ may neither enter nor permit the 
entry of multiple orders in an option into the AUTOM System within any 
15-second period for an account or accounts of the same beneficial 
owner.\6\ In April, 2002, the Exchange adopted, on a six-month pilot 
basis, rules allowing the entry via AUTOM of off-floor broker-dealer 
\7\ limit orders (including Commentary .05(iii) to Rule 1080--a similar 
15-second rule applicable to such off-floor broker-dealer limit 
orders).\8\ The Commission approved the pilot rules on a permanent 
basis in October, 2002.\9\
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    \5\ The Exchange defines an ``Order Entry Firm'' as a member 
organization of the Exchange that is able to route orders to AUTOM. 
See Exchange Rule 1080(c)(ii)(A)(1).
    \6\ See Securities Exchange Act Release No. 44687 (August 13, 
2001), 66 FR 43287 (August 17, 2001) (SR-Phlx-2001-58).
    \7\ The term ``off-floor broker-dealer'' means a broker-dealer 
that delivers orders from off the floor of the Exchange for the 
proprietary account(s) of such broker-dealer, including a market 
maker located on an exchange or trading floor other than the 
Exchange's trading floor who elects to deliver orders via AUTOM for 
the proprietary account(s) of such market maker. See Exchange Rule 
1080(b)(i)(C).
    \8\ See Securities Exchange Act Release No. 45758 (April 15, 
2002), 67 FR 19610 (April 22, 2002) (SR-Phlx-2001-40).
    \9\ See Securities Exchange Act Release No. 46660 (October 15, 
2002), 67 FR 64951 (October 22, 2002) (SR-Phlx-2002-50).
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    The original purpose of the rules was to assist Exchange 
specialists and Registered Options Traders (``ROTs'') in managing their 
risk, and to protect investors and other market participants from the 
potential negative consequences that might result from Order Entry 
Firms or off-floor broker-dealers engaging in prohibited conduct.
    Since the time of the adoption of the rules, the Exchange's 
electronic trading systems have been substantially enhanced such that 
the risk associated with multiple orders in the same option delivered 
for the account of the same or an affiliated beneficial account holder 
has become more manageable through electronic means.\10\ For example, 
the Exchange has developed its fully electronic trading system, Phlx 
XL, which has been deployed for all equity and index options trading on 
the Exchange. Phlx XL and its automatic execution features, Book Match 
and Book Sweep, provide fully electronic executions and trade reports, 
and specialists and Streaming Quote Traders (``SQTs'') \11\ submitting 
proprietary electronic quotations through Phlx XL are able to revise 
their quotations electronically, which the Exchange believes 
substantially reduces the risk of multiple executions of orders 
delivered in rapid succession before the specialist or SQT is able to 
revise their quotation.
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    \10\ The 15-second restriction is strictly rule based, and the 
Exchange's systems do not include an electronic ``governor.''
    \11\ An SQT is an ROT who has received permission from the 
Exchange to generate and submit option quotations electronically 
through an electronic interface with the AUTOM System via an 
Exchange approved proprietary electronic quoting device in eligible 
options to which the SQT is assigned. See Exchange Rule 
1014(b)(ii)(A).
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    The Exchange believes that the advent of Phlx XL and the 
substantial increase in automated option order handling obviate the 
need for the 15-second prohibition currently included in Exchange Rule 
1080(c)(ii)(B)(3), and the similar prohibition concerning the delivery 
of proprietary orders by off-floor broker-dealers contained in 
Commentary .05(iii) to Exchange Rule 1080. The Exchange further 
believes that the removal of the 15-second prohibition should increase 
the number of orders handled electronically on the Exchange. 
Accordingly, the Exchange has determined to eliminate both of these 
rules.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \13\ in particular, in that it is 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 
market system, and to protect investors and the public interest by 
increasing the number of orders handled electronically on the Exchange 
through the elimination of the prohibition against the entry into AUTOM 
of multiple orders by the same beneficial account owner within a 15-
second period.
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    \12\ 15 U.S.C. 78s(b).
    \13\ 15 U.S.C. 78s(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx does not believe that the proposed rule change, as 
amended, 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.

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 Exchange consents, the Commission shall:
    (a) By order approve such proposed rule change; 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, as amended, 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-2005-20 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-2005-20. 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

[[Page 24158]]

change, as amended, that are filed with the Commission, and all written 
communications relating to the proposed rule change, as amended, 
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 such 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-2005-20 and should be 
submitted on or before May 27, 2005.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-2200 Filed 5-5-05; 8:45 am]
BILLING CODE 8010-01-P