[Federal Register Volume 70, Number 119 (Wednesday, June 22, 2005)]
[Notices]
[Pages 36222-36223]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3219]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51853; File No. SR-Phlx-2005-41]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Providing an Electronic, Auditable Means of Receiving 
Orders and Cancels to Those Orders

June 15, 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 June 9, 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 
filed the proposed rule change as a ``non-controversial'' rule change 
under Rule 19b-4(f)(6) under the Act,\3\ which renders the proposal 
effective upon filing with the Commission. 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\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to create a new system to accept and route orders 
in System Eligible Securities (defined below) to a receiving member 
organization (i.e., a floor broker) on the Equity Floor (and in the 
case of Remote Specialists, only orders in their specialty securities) 
from sending member organizations (i.e., an order flow provider) who 
utilize an electronic, commercial order routing system.\4\ In addition, 
the new system would allow the receiving member organization to send 
execution or cancel reports for those orders back to the sending member 
organization.
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    \4\ Examples of electronic, commercial order routing system 
include Lava, BRASS and Macgregor.
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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, Proposed Rule Change

1. Purpose
    The Exchange represents that the purpose of the proposed rule 
change is to assist receiving member organizations (i.e., floor 
brokers) on the Exchange's Equity Floor by providing an electronic, 
auditable means of receiving orders and cancels to those orders from 
sending member organizations (i.e., order flow providers).\5\ To 
accomplish this, the Phlx proposes to create a new system for receiving 
member organizations to receive orders from sending member 
organizations through an electronic, commercial order routing system 
(the Exchange's system hereinafter called the ``Order Routing System'' 
or ``ORS''). The Phlx intends that this Order Routing System will 
provide an opportunity for receiving member organizations and sending 
member organizations to accomplish order delivery by means of this new 
electronic system as an alternative to using the telephone.\6\ The 
Exchange proposes that the ORS would receive orders and present them to 
the receiving member organization to which they were directed, but 
would perform no execution of the orders, nor would it interface with 
PACE, the Exchange's automated order routing, delivery, execution and 
reporting system for equities.
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    \5\ Receiving member organizations that are Remote Specialists 
pursuant to Phlx Rule 461 may receive orders only in securities in 
which the Remote Specialist is a specialist because of the 
prohibition in Phlx Rule 461 against remote floor brokerage.
    \6\ The Exchange notes that receiving member organizations may 
continue to receive orders from sending member organizations by 
telephone. This proposed rule change is intended to provide an 
additional method for receiving member organizations to receive 
orders.
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    The ORS would allow a sending member organization to route orders 
to the receiving member organization in any equity security listed or 
traded pursuant to unlisted trading privileges \7\ on the Exchange \8\ 
(``System Eligible Security''). The orders delivered to the receiving 
member organization would be available for handling by such receiving 
member organization. Once in receipt of the order, the receiving member 
organization could either seek execution for the order on the Phlx or 
in another venue. The ORS itself would not provide any execution, tape 
reporting, or clearing \9\ functionality. If the receiving member 
organization would seek to execute an ORS-delivered order on the Phlx, 
that receiving member organization would need to follow all applicable 
rules on the Phlx to seek an execution, including the rules of 
priority, parity and precedence and the creation of an order ticket 
representing that order.
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    \7\ Unlisted trading privileges are granted to the Exchange 
under Section 12(f) of the Act. 15 U.S.C. 78l(f).
    \8\ This is subject to the limitation on Remote Specialists 
described in note 5, supra.
    \9\ While the ORS would not provide any clearing functionality 
itself, receiving member organizations may indicate on the 
electronic form used to report executions to sending member 
organizations that a copy of this information be sent to the 
appropriate accounts at the Stock Clearing Corporation of 
Philadelphia for clearing purposes. Receiving member organization 
using this copy of the electronic form would have an opportunity to 
experience more efficient operations and reduce the risk of error by 
eliminating the need to enter the same information more than once.
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    The ORS would receive the following order types: Market, limit, 
stop, stop limit and market on close. The ORS would provide the 
receiving member organization the capacity to report the execution of 
an order received by the ORS back to the sending member organization 
that sent the order. In addition, when a receiving member organization 
receives a cancel to a previously received order, the receiving member 
organization would need to respond to that cancel with an 
acknowledgement of the cancel or with a message that it is too late to 
cancel and an execution report or some combination thereof.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \11\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and national market system and, 
in general, to protect investors and the public interest. Specifically, 
the Exchange believes that the ORS would provide receiving member 
organizations that use the system with an electronic record of order 
receipts and execution or cancel reports sent to sending member 
organizations relating to those orders or reports. Therefore, the Phlx 
believes that the ORS could serve as an

[[Page 36223]]

audit trail and would assist the receiving member organizations in 
maintaining their required books and records for regulatory purposes 
and for their own internal management and billing purposes.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 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 after the date of filing (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 \12\ and subparagraph (f)(6) 
of Rule 19b-4 thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\14\ 
However, Rule 19b-4(f)(6)(iii) \15\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has satisfied the five-
day filing requirement. In addition, the Exchange has requested that 
the Commission waive the 30-day pre-operative delay and designate the 
proposed rule change to become operative on June 30, 2005. The 
Commission believes that waiving the 30-day pre-operative delay is 
consistent with the protection of investors and the public interest 
because it would allow the Exchange and its member organizations to 
realize the regulatory and operational benefits of this functionality 
more expeditiously. For the reasons stated above, the Commission 
designates the proposal to become effective immediately and operative 
on June 30, 2005.\16\
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ Id.
    \16\ For purposes of accelerating the operative date of this 
proposal only, the Commission has considered the impact of the 
proposed rule 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 the 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-2005-41 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9309.
    All submissions should refer to File Number SR-Phlx-2005-41. 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, 100 F Street, 
NE., Washington, DC 20549. 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-2005-41 
and should be submitted on or before July 13, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3219 Filed 6-21-05; 8:45 am]
BILLING CODE 8010-01-P