[Federal Register Volume 71, Number 125 (Thursday, June 29, 2006)]
[Notices]
[Pages 37155-37156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-5792]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54036; File No. SR-Phlx-2005-61]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Approval of Proposed Rule Change, and Amendment Nos. 1 
and 2 Thereto, Relating to the Deletion of Certain Exchange Rules

June 23, 2006.

I. Introduction

    On October 14, 2005, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to eliminate certain rules that 
the Exchange believes are obsolete due to changes in the law or the 
business methods employed by the Exchange. On March 10 and May 1, 2006, 
respectively, the Exchange submitted Amendment Nos. 1 \3\ and 2 \4\ to 
the proposed rule change. The proposed rule change, as amended, was 
published for comment in the Federal Register on May 18, 2006.\5\ No 
comments were received regarding the proposal, as amended. This order 
approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1, which replaced the original filing in its 
entirety, made clarifying changes to the proposed rule change and 
sought to retain Phlx Rules 229 Supplementary Material .07(c)(ii) 
and 236.
    \4\ Amendment No. 2, which replaced the original filing and 
Amendment No. 1 in their entirety, made general clarifying changes 
to the proposed rule change and sought to retain Phlx rule 219, as 
well as Phlx rules 229 Supplementary Material .07(c)(ii) and 236. 
Phlx states that it plans to propose to delete Phlx Rules 219, 229 
Supplementary Material .07(c)ii), and 236 in a future proposed rule 
change regarding a change to Phlx systems.
    \5\ See Securities Exchange Act Release No. 53795 (May 12, 
2006), 71 FR 28893 (May 18, 2006) (``Notice'').
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II. Description of the Proposed Rule Change

    Phlx is proposing to remove from its rule book Phlx Rules 129, 241-
248, and 923.

Phlx Rule 129: Withdrawal of Orders

    Phlx rule 129 prohibits the withdrawal of an order from the 
Exchange, at the request of another member, for the purpose of the 
purchase or sale of the securities outside of the Exchange.

Phlx Rules 241-248: Rules for Special Offerings

    Phlx Rules 241-248 concern special offerings of securities on the 
Exchange. In 1942, the Commission amended Rule 10b-2 under the Act to 
permit an exemption for special offerings under a plan filed with the 
Commission by an exchange.\6\ Phlx's Plan, contained in Phlx rules 241-
248, permits special offerings, at a fixed price and for a fixed period 
of time, on the Exchange where the quantity of stock involved cannot be 
absorbed in the regular auction market within a reasonable time and at 
a reasonable price. Phlx rules 241-248 permit a person making a special 
offering to pay a special commission to a broker for a purchasing 
customer.
    Generally, Phlx Rules 241-248 specify a minimum share size of 1,000 
shares, with a value of $25,000. According to the Exchange, by today's 
standards, 1,000 shares of stock with a value of $25,000 is not a 
quantity of stock that cannot readily be absorbed in the regular 
auction market. Phlx Rules 241-248 predate Phlx crossing Rule 126, 
which has special cross provisions for Trust Shares of 25,000 shares or 
greater and all securities of 5,000 shares or greater, and PACE, which 
is described in Phlx Rule 229 and which sets minimum automatic 
execution sizes for securities on the system of 599 shares, noting that 
specialists may set higher levels.
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    \6\ Phlx filed its plan in 1943. See Securities Exchange Act 
Release No. 3487 (September 23, 1943).
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    In proposing the rescission of Rule 10b-2, the Commission indicated 
that it believed that the significant changes that have taken place in 
the securities markets since Rule 10b-2's adoption, and the coverage of 
other anti-fraud and anti-manipulation provisions of the Federal 
securities laws, made it appropriate to rescind Rule 10b-2.\7\ The 
Exchange now proposes to delete Phlx Rules 241-248, the plan adopted in 
response to Rule 10b-2, because it believes that these rules are 
obsolete as the Commission rescinded Rule 10b-2 and the Exchange has 
not utilized Phlx Rules 241-248 in the past twenty years.\8\
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    \7\ See Securities Exchange Act Release No. 32100 (April 2, 
1993), 58 FR 18145 (April 8, 1993).
    \8\ See also Securities Exchange Act Release No. 32822 (August 
31, 1993), 58 FR 47484 (September 9, 1993) (SR-NYSE-93-20) 
(rescinding New York Stock Exchange (``NYSE'') Rule 391, which is 
similar to Phlx Rules 241-248).
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Phlx Rule 923: Member Officers

    Phlx Rule 923 requires members associated with member corporations 
to be officers and voting stockholders of those member corporations, 
noting that the Exchange may waive the voting stock requirement of the 
rule.

III. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange. Specifically, the Commission finds that the 
proposal is consistent with section 6(b)(5) of the Act,\9\ which 
requires, in part, that the rules of an exchange be designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public 
interest.\10\
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ In approving this proposal, the Commission has considered 
the proposed rule's impact of efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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    As noted above, the Exchange proposes to clarify the Exchange's 
rules by eliminating provisions that no longer are necessary and are 
obsolete. The Commission believes these changes are consistent with the 
Act. With respect to the deletion of Phlx Rule 129, the Exchange notes 
that currently members, in exercising their duty to obtain best 
execution for orders entrusted to them, may remove orders from the 
Exchange and seek execution in other venues. With respect to the 
proposed deletion of Phlx Rules 241-248, the Commission notes that 
these rules are substantially similar to former NYSE Rule 391, which 
was rescinded in 1993.\11\ In approving the NYSE's deletion of this 
rule, the Commission noted that it was appropriate for the Exchange 
rescind NYSE Rule 391 in light of the rescission of Rule 10b-2.
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    \11\ See Securities Exchange Act Release No. 32822, supra note 
8.
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    Moreover, the Commission believes that it is consistent with the 
Act for Phlx to delete Phlx Rule 923, to provide member corporations 
additional flexibility to choose whom in their company to employ as 
members of the Exchange. According to the Exchange, this rule was 
adopted as least fifty years ago, when most member corporations were 
small regional companies. The purpose of this rule at that time, 
according to the Exchange, may have been to provide an additional means 
of obtaining security for the debts of the member corporation by 
requiring that the members who were trading the securities also be 
officers and/or owners of the corporation. Today, Phlx has other rule-
based means to require adequate financial security for the debts

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of member corporations and for ensuring that member corporations are 
generally financially solvent.\12\
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    \12\ See e.g., Phlx Rule 909 (requiring member organizations to 
provide and maintain security for any claims owed to the Exchange 
and other members and member organizations); and Phlx Rule 924 
(making the member organization liable for the fees, fines, dues, 
penalties and other amounts imposed by the Exchange on its members; 
this provision applies regardless of the officer or ownership status 
of the member). According to Phlx, member corporations are a subset 
of member organizations. Therefore, Phlx Rules 909 and 924 apply to 
member corporations.
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-Phlx-2005-61), as amended, 
is approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    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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Nancy M. Morris,
Secretary.
[FR Doc. 06-5792 Filed 6-28-06; 8:45 am]
BILLING CODE 8010-01-M