[Federal Register Volume 70, Number 143 (Wednesday, July 27, 2005)]
[Notices]
[Pages 43495-43496]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3978]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52072; File No. SR-Phlx-2005-33]


Self-Regulatory Organizations; The Philadelphia Stock Exchange, 
Inc.; Notice of Filing of Proposed Rule Change, and Amendments No. 1 
and 2 Thereto, Relating to Sending Principal Orders Via the Intermarket 
Options Linkage

July 20, 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 May 6, 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, II, 
and III below, which Items have been prepared by the Exchange. On May 
11, 2005, the Phlx submitted Amendment No. 1 to the proposed rule 
change.\3\ On July 8, 2005, the Exchange filed Amendment No. 2.\4\ 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\ See Amendment No. 1 dated May 11, 2005 (``Amendment No. 
1''). Amendment No. 1 corrected a pagination error in the original 
filing.
    \4\ See Amendment No. 2 dated July 8, 2005 (``Amendment No. 
2''). Amendment No. 2 made a minor technical change to the proposed 
rule text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rule 1087, Limitation on 
Principal Order Access, relating to the Plan for the Purpose of 
Creating and Operating an Intermarket Option Linkage (``Linkage 
Plan'').\5\ Specifically, the proposed rule change, as amended, would 
establish an exemption to the so called ``80/20 Test,'' which provides 
that specialists and Registered Options Traders (``ROTs'') effecting 
transactions that represent 20 percent or more of their contract volume 
in a particular calendar quarter by sending Principal Orders \6\ to 
other exchanges via the Linkage may not send Principal Orders in that 
option during the following calendar quarter. The proposed exemption 
would apply to specialists and ROTs that have total contract volume of 
less than 1,000 contracts in an option for such calendar quarter. The 
text of the proposed rule, as amended, is available at the Exchange's 
Web site at http//www.phlx.com/exchange/phlx_rule_fil.html and at the 
Commission's Public Reference Room.
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    \5\ On July 28, 2000, the Commission approved a national market 
system plan for the purpose of creating and operating an intermarket 
options market linkage (``Linkage'') proposed by the American Stock 
Exchange, LLC, Chicago Board Options Exchange, Inc. and the 
International Securities Exchange, Inc. See Securities Exchange Act 
Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000). 
Subsequently, Phlx, the Pacific Exchange, Inc. and the Boston Stock 
Exchange, Inc. joined the Linkage Plan. See Securities Exchange Act 
Release Nos. 43573 (November 16, 2000), 65 FR 70851 (November 28, 
2000); 43574 (November 16, 2000), 65 FR 70850 (November 28, 2000); 
and 49198 (February 5, 2004), 69 FR 7029 (February 12, 2004).
    \6\ The Exchange defines a ``Linkage Order'' as an Immediate or 
Cancel order routed through the Linkage as permitted under the Plan. 
There are three types of Linkage Orders: (i) ``Principal Acting as 
Agent (``P/A'') Order,'' which is an order for the principal account 
of a specialist (or equivalent entity on another Participant 
Exchange that is authorized to represent Public Customer orders), 
reflecting the terms of a related unexecuted Public Customer order 
for which the specialist is acting as agent; (ii) ``Principal 
Order,'' which is an order for the principal account of an Eligible 
Market Maker and is not a P/A Order; and (iii) ``Satisfaction 
Order,'' which is an order sent through the Linkage to notify a 
member of another Participant Exchange of a Trade-Through and to 
seek satisfaction of the liability arising from that Trade-Through. 
See Phlx Rule 1083(k).
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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 Exchange 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 this proposed rule change, as amended, is to 
implement proposed Joint Amendment No. 17 to the Linkage Plan. Joint 
Amendment No. 17, together with this proposed rule change, will modify 
the 80/20 Test set forth in Section 8(b)(iii) of the Linkage Plan and 
Phlx Rule 1087.
    In particular, the purpose of this proposed rule change, as 
amended, is to modify Phlx Rule 1087 to establish an exemption from the 
provision in the rule that states that a specialist or ROT that 
effected 20 percent or more of its volume in a particular option by 
sending Principal Orders through the Linkage in a calendar quarter is 
prohibited from sending Principal Orders via the Linkage in such option 
during the following calendar quarter.
    According to the Exchange, applying this prohibition has resulted 
in anomalies for specialists and ROTs with limited quarterly volume in 
an option. Specifically, if a specialist or ROT has very little overall 
trading volume in an option, the execution of one or two Principal 
Orders during a calendar quarter could result in the specialist or ROT 
trading more than 20 percent of his or her contract volume in a given 
option based on relatively insignificant contract volume in such 
option. This would bar the specialist or ROT from sending Principal 
Orders in such option via Linkage for the following calendar quarter. 
The Exchange does not believe that it was the intent of participants in 
the Plan (i.e., the six U.S. options exchanges) to bar participants 
with limited volume from sending Principal Orders through the Linkage 
in these circumstances since such trading clearly was not a primary 
aspect of their business.
    The proposed rule change would create an exemption from the 
prohibition for specialists and ROTs that have total contract volume of 
less than 1,000 contracts in an option for a calendar quarter. The 
Exchange believes that this exemption will reduce the number of 
instances in which specialists and ROTs with limited contract volume in 
a particular option are prohibited from sending Principal Orders via 
the Linkage for a calendar quarter.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is

[[Page 43496]]

consistent with Section 6(b) of the Act \7\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act \8\ in particular, because 
it is designed to perfect the mechanisms of a free and open market and 
a national market system, protect investors and the public interest, 
and promote just and equitable principles of trade by creating an 
exemption from the prohibition against effecting transactions that 
represent 20 percent or more of their contract volume in a particular 
calendar quarter in certain options, in conformity with the Linkage 
Plan.
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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, 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

    Written comments were neither solicited nor 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 Phlx consents, the Commission will:
    (A) By order approve such proposed rule change; or
    (B) institute proceedings to determine whether the proposed rule 
change 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 is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form at http://www.sec.gov/rules/sro.shtml; or send an e-mail to [email protected]. Please include File Number SR-Phlx-2005-33 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 20549-9303.
    All submissions should refer to File Number SR-Phlx-2005-33. 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 Room. Copies 
of such filing also will be available for inspection and copying at the 
principal office of the Exchange. 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 publicly available. All submissions should refer to 
File Number SR-Phlx-2005-33 and should be submitted on or before August 
17, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3978 Filed 7-26-05; 8:45 am]
BILLING CODE 8010-01-P