[Federal Register Volume 70, Number 182 (Wednesday, September 21, 2005)]
[Notices]
[Pages 55443-55445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-18768]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52425; File No. SR-Phlx-2005-27]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto 
Relating to the Modification of the Definition of Firm Customer Quote 
Size and the Removal of Certain Restrictions on Sending Secondary P/A 
Orders Under the Linkage Plan

September 14, 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 April 26, 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 Phlx. On September 
2, 2005, the Exchange submitted 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange made clarifying changes to 
the proposed rule text relating to the availability of Participant 
exchanges' automatic execution system.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules governing the operation of 
the intermarket option linkage to conform with a proposed amendment \4\ 
to the Plan for the Purpose of Creating and Operating an Intermarket 
Option Linkage (``Linkage Plan'').\5\ The

[[Page 55444]]

Exchange is proposing to amend: (i) Exchange Rule 1083 by modifying the 
definition of Firm Customer Quote Size (``FCQS''), and (ii) Exchange 
Rule 1084 by deleting certain restrictions on sending secondary 
Principal Acting as Agent Orders (``P/A Orders'')\6\ pursuant to the 
Linkage Plan. The text of the proposed rule change, as amended, is 
available on Phlx's Web site at (www.phlx.com), at the Phlx's Office of 
the Secretary, and at the Commission's Public Reference Room.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 52401 (September 9, 
2005) (File No. 4-429).
    \5\ On July 28, 2000, the Commission approved a national market 
system plan for the purpose of creating and operating an intermarket 
option market linkage proposed by the American Stock Exchange, LLC, 
Chicago Board Options Exchange, Incorporated, and International 
Securities Exchange, Inc. See Securities Exchange Act Release No. 
43086 (July 28, 2000), 65 FR 48023 (August 4, 2000). Subsequently, 
upon separate requests by the Phlx, Pacific Exchange, Inc. and 
Boston Stock Exchange, Inc. the Commission issued orders to permit 
these exchanges to participate in the Linkage Plan. See Securities 
Exchange Act Release Nos. 43573 (November 16, 2000), 65 FR 70850 
(November 28, 2000), 43574 (November 16, 2000), 65 FR 70851 
(November 28, 2000) and 49198 (February 5, 2004), 69 FR 7029 
(February 12, 2004).
    \6\ A P/A Order 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. See Exchange Rule 1083(k)(i).
---------------------------------------------------------------------------

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, as 
amended, 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 the definition 
of FCQS to reflect current practices of the respective Linkage Plan 
participants (``Participants'')\7\ relating to disseminated size that 
were not in existence at the time the Linkage Plan was originally 
adopted. At the time the Linkage Plan was originally adopted, options 
quote sizes generally were not disseminated through the Options Price 
Reporting Authority and most Participants employed automatic execution 
systems that guaranteed automatic executions of orders under a certain 
contract size (which was generally a static number). At that time, the 
FCQS was calculated based on the number of contracts the sending and 
receiving Participants guaranteed they would automatically execute. Now 
that all Participants disseminate dynamic quotes with size, the 
Exchange believes that it is appropriate to calculate the FCQS based on 
the size of the disseminated quotation of the Participant receiving the 
P/A Order. Accordingly, the Exchange proposes to amend Exchange Rule 
1083(g) to define FCQS as the size of the disseminated quotation of the 
Participant receiving the P/A Order.
---------------------------------------------------------------------------

    \7\ Section 2(24) of the Linkage Plan defines ``Participant'' as 
an Eligible Exchange whose participation in the Linkage Plan has 
become effective pursuant to Section 4(c) of the Linkage Plan.
---------------------------------------------------------------------------

    Another purpose of the proposed rule change is to eliminate a 15-
second waiting period for sending a secondary P/A Order pursuant to 
Exchange Rule 1084(c)(2), which governs the manner in which a P/A Order 
larger than the FCQS can be broken into smaller P/A Orders. Currently, 
an initial P/A Order can be sent to the Participant whose disseminated 
price that is the National Best Bid or Offer (``NBBO'') for a size that 
is the FCQS. If the receiving Participant that is disseminating the 
NBBO continues to disseminate the same price after 15 seconds from the 
execution of the initial P/A Order, a secondary P/A Order can be sent 
for at least the lesser of: (i) The size of the disseminated quote; 
(ii) 100 contracts; or (iii) the remainder of the customer order 
underlying the P/A Orders. The Exchange proposes to eliminate the 15-
second wait period because the dynamic quotes with size now employed by 
the Participants obviate the need for a manual quote refresh period for 
P/A Orders. The Exchange also proposes to amend Exchange Rule 1084 to 
clarify that an automatic execution of a P/A Order is not required if 
the P/A Order is larger than the Firm Customer Quote Size, and that 
automatic execution will be provided for P/A orders at or below the 
FCQS, if automatic execution is available.\8\
---------------------------------------------------------------------------

    \8\ The Commission made technical corrections to this sentence 
pursuant to a telephone conversation with Phlx, as noted herein. 
Telephone call between Tim Fox, Special Counsel, Commission, and 
Richard Rudolph, Vice President and Counsel, Phlx on September 12, 
2005.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \9\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act \10\ in particular, in 
that 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 amending the 
definition of FCQS to reflect current practices of the Participants 
relating to disseminated size, and by eliminating the 15-second wait 
period for the sending of secondary P/A Orders to reflect current 
systems in place on the various Participants.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, would impose any burden on competition that is 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

    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, as amended; 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-2005-27 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission,

[[Page 55445]]

Station Place, 100 F Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-Phlx-2005-27. 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-2005-27 and should be submitted on 
or before October 12, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jonathan G. Katz,
Secretary.
[FR Doc. 05-18768 Filed 9-20-05; 8:45 am]
BILLING CODE 8010-01-P